Working Paper
Poverty and Governance

The Contest for Aid

Countries compete with one another for funds distributed by nongovernment organizations (NGOs). We examine the competition over poverty and governance conducted by a NGO in the allocation of its funds among potential recipient countries. The NGO in its decisionmaking process also takes into account the initial conditions of each potential recipient, including the current quality of governance and wealth (poverty). For example, all else equal, the poorer country will have a higher probability of obtaining funds; or, the better the applicant’s governance, the greater are its gains. Moreover, the maximum aid a country can obtain depends on its wealth. Investment in good governance, the wealth/poverty status of the applicant, and its current quality of governance will in conjunction determine the funds potential recipients can expect to obtain. We also consider recent changes in the levels of these factors in our attempt to understand the roles these factors play in the competition for aid, and the outcome for the quality of governance.