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Multilateral Aid Agencies and Strategic Donor Behaviour

The paper builds on recent empirical evidence on the importance of strategic donor behaviour in aid allocation in order to develop a theoretical model where donor pressure on a recipient for influencing the aid disbursement of a multilateral institution is endogenously determined. Our game-theoretic, multi-agent model with one aid recipient, two bilateral donors and one multilateral institution illustrates the advantage of putting pressure on the recipient as an instrument for foreign policy, as seen from the mighty donor's point of view. The model shows how this strategic donor behaviour is damaging to the aid-recipient; we also show that other donors not sharing foreign policy goals similar to the strategic, influential donors will, in fact, reduce their aid contributions to the multilateral organizations. This may obviously have profound implications for the volume of total aid flows and may crucially undermine current efforts to substantially increase ODA to meet the Millennium Development Goals by 2015. Our paper also contributes to the common debate on foreign aid by presenting a rigorous model that explains the coexistence of both multilateral aid organizations and bilateral aid programmes.
Publisher:
UNU-WIDER
Series:
WIDER Discussion Paper
Volume:
2006/02
Title:
Multilateral Aid Agencies and Strategic Donor Behaviour
Authors:
George Mavrotas and Espen Villanger
Publication date:
2006
ISBN Printed:
929190774X
ISBN Web:
9291907758
ISBN 13 Print:
9789291907748
ISBN 13 Web:
9789291907755
Copyright holder:
© UNU-WIDER
Copyright year:
2006
Keywords:
foreign aid, strategic donor behaviour, multilateral aid agencies
JEL:
F35
Project:
Development Aid: A Fresh Look
Sponsor:
The governments of Denmark (Royal Ministry of Foreign Affairs), Finland (Ministry for Foreign Affairs), Norway (Royal Ministry of Foreign Affairs), Sweden (Swedish International Development Cooperation Agency-Sida) and the United Kingdom (Department for International Development).
Format:
online and printed copies
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