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Blockchain Technology and the Governance of Foreign Aid

Author

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  • Bernhard Reinsberg
  • Centre for Business Research

Abstract

Blockchain technology has been considered a vehicle to foster development in poor countries by promoting applications such as secure delivery of humanitarian aid, digital identity services, and proof of provenance. This article examines whether (and if so how) blockchain technology - if appropriately designed- can enhance the effectiveness (and efficiency) of foreign aid governance, thereby moving beyond completely anonymous contexts. Foreign aid governance is plagued by lack of credible commitments among states which are further exacerbated by information asymmetries and which often undermine aid effectiveness. In this context, blockchain technology holds two promises. First, through guaranteed enforcement of smart contracts, it can strengthen the credibility of state commitments, for example collective burden-sharing rules among a group of donors or recipient-country compliance with policy conditionality in return for aid. Second, through leveraging prediction markets, blockchain technology can allay information problems related to the verification of real-world events along the entire aid delivery chain. Overall, the article shows that blockchain technology can be understood as a mechanism with institution-like features, with significant potential to complement real-existing institutions. The article also suggests that deploying blockchain technology in semi-trusted environments and at the international level avoids many of its well-known disadvantages.

Suggested Citation

  • Bernhard Reinsberg & Centre for Business Research, 2018. "Blockchain Technology and the Governance of Foreign Aid," Working Papers wp505, Centre for Business Research, University of Cambridge.
    • Handle: RePEc:cbr:cbrwps:wp505
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    References listed on IDEAS

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    More about this item

    Keywords

    Foreign aid; Blockchain; Ethereum; smart contracts; international organizations; World Bank; New Institutional Economics;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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