Approche Institutionnelle Du Processus De Délivrance De L’Aide : Cas De La Délégation A Une Institution Multilatérale Cas De La Délégation A Une Institution Multilatérale

This paper develops an integrated Principal-Agent model which analyses the contractual and institutional determinants of the efficiency of foreign aid provision. Using the Svensson (2000) model on donors’ strategies, we look at incentives in the chain of institutions involved in the delivery of foreign aid. Our model differs from Svensson’s by allowing for global partnership and mutual commitment. If we regard foreign aid as a contract whereby an altruistic bilateral donor gives an aid transfer to two recipient countries in return for poverty reduction (as international public good), it remains to be seen whether the anticipation of this adversely affects the recipients’ incentives to carry out poverty reduction policies. In order to mitigate this Samaritan Dilemma, we show that failing to devise optimal contracts (first and second best), bilateral donor countries can positively delegate part of their aid budget to institutional intermediates such as multilateral aid institutions (for instance the World Bank) mandated to reduce poverty in the South. This could help bilateral donors mitigate the timeinconsistency and agency problems in foreign aid policy, and therefore push the discretionary equilibrium closer to the second best contract (benchmarking).