'Optimal Discipline in Donor-Recipient Relationships - Reframing the Aid Effectiveness Debate

Résumé

This paper proposes a principal-agent model of the aid donor-recipient relation- ship in which the donor monitors the use of aid and administers sanctions when some fraud is detected. Its original feature is the assumed comparability between domestic and donor-imposed disciplines. We show that, paradoxically, an (exogenous) improvement of domestic discipline maybe over-compensated by the donor so that total discipline actually decreases and elite capture increases. The relationship between domestic and total disciplines thus may be non-monotonous so that no simple general testable prediction can be inferred from economic theory regarding the impact of aid even controlling for domestic governance.