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Competition for environmental aid and aid fungibility

Author

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  • Hadjiyiannis, Costas
  • Hatzipanayotou, Panos
  • Michael, Michael S.

Abstract

Aid from environmentally conscious donors to developing recipients has long been thought of as a very promising way of preserving the global environment. However, aid is fungible and recipients cannot commit to using it for the purpose it was intended. We analyze competition for aid games with aid fungibility and cross-border pollution to gain insights on how to allocate environmental aid more efficiently. We set up a two stage game of two recipients receiving aid from a donor interested in minimizing pollution. Recipients cannot commit on the use of aid but they can commit on the infrastructure necessary to use aid for pollution abatement. We find that the success of competition for aid games depends critically on the degree of cross-border pollution. This determines whether it is more efficient to set up such games between recipients with little (or a lot of) cross-border pollution between them.

Suggested Citation

  • Hadjiyiannis, Costas & Hatzipanayotou, Panos & Michael, Michael S., 2013. "Competition for environmental aid and aid fungibility," Journal of Environmental Economics and Management, Elsevier, vol. 65(1), pages 1-11.
    • Handle: RePEc:eee:jeeman:v:65:y:2013:i:1:p:1-11
    DOI: 10.1016/j.jeem.2012.04.004
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    References listed on IDEAS

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    Cited by:

    1. Mohamed Boly, 2018. "CO 2 mitigation in developing countries: the role of foreign aid," Working Papers halshs-01740881, HAL.
    2. Fabio Antoniou & Panos Hatzipanayotou & Michael S. Michael & Nikos Tsakiris, 2019. "On the Principles of Commodity Taxation under Interregional Externalities," University of Cyprus Working Papers in Economics 03-2019, University of Cyprus Department of Economics.
    3. Nikos Tsakiris & Nikolaos Vlassis, 2024. "Border Carbon Adjustments and Leakage in the Presence of Public Pollution Abatement Activities," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 87(9), pages 2231-2258, September.
    4. Fabio Antoniou & Panos Hatzipanayotou & Michael S. Michael & Nikos Tsakiris, 2022. "Tax competition in the presence of environmental spillovers," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(3), pages 600-626, June.

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