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Aid allocation with optimal monitoring: Theory and policy

Author

Listed:
  • François Bourguignon

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Jean-Philippe Platteau

    (University of Namur)

Abstract

We explore the implications of allowing a poverty-averse donor to monitor aid use within the familiar context of the needs vs. aid effectiveness tradeoff. The paper focuses on the optimal aid allocation between two countries when the donor simultaneously decides about aid shares and country-specific monitoring effort aimed at increasing the amount reaching the poor. Endogenizing aid effectiveness is shown to raise the poor's income in the worse-governed country, yet not necessarily in the better-governed one, whereas the effect on country aid shares is essentially ambiguous. Those results still hold when the basic model is extended in various directions. Conventional aid allocation rules should be re-examined in their light.

Suggested Citation

  • François Bourguignon & Jean-Philippe Platteau, 2025. "Aid allocation with optimal monitoring: Theory and policy," PSE-Ecole d'économie de Paris (Postprint) halshs-04804605, HAL.
    • Handle: RePEc:hal:pseptp:halshs-04804605
    DOI: 10.1016/j.jdeveco.2024.103364
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