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Aid Conditionality and Military Expenditure Reduction in Developing Countries: Models of Asymmetric Information

Aid Conditionality and Military Expenditure Reduction in Developing Countries: Models of... Abstract The paper analyses problems of implementing non-economic conditionality, such as military expenditure reduction, in the granting of foreign aid given the presence of asymmetric information. We present two conceptually separate principal-agent models, to capture the stylised facts of multilateral and bilateral aid negotiations respectively. The first model is an application of the problem of adverse selection when there is more than one type of principal (donor) with varying objectives. The second model extends moral hazard to double moral hazard, where neither principal nor agent (recipient) can fully observe or verify each other's strategies. This content is only available as a PDF. Author notes We are grateful to two anonymous referees for helpful comments on the paper. The Economic Journal © 1995 Royal Economic Society http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Economic Journal Oxford University Press

Aid Conditionality and Military Expenditure Reduction in Developing Countries: Models of Asymmetric Information

Murshed, S., Mansoob; Sen,, Somnath
Economic Journal , Volume 105 (429) – Mar 1, 1995
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References (6)

Publisher
Oxford University Press
Copyright
The Economic Journal © 1995 Royal Economic Society
ISSN
0013-0133
eISSN
1468-0297
DOI
10.2307/2235507
Publisher site
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Abstract

Abstract The paper analyses problems of implementing non-economic conditionality, such as military expenditure reduction, in the granting of foreign aid given the presence of asymmetric information. We present two conceptually separate principal-agent models, to capture the stylised facts of multilateral and bilateral aid negotiations respectively. The first model is an application of the problem of adverse selection when there is more than one type of principal (donor) with varying objectives. The second model extends moral hazard to double moral hazard, where neither principal nor agent (recipient) can fully observe or verify each other's strategies. This content is only available as a PDF. Author notes We are grateful to two anonymous referees for helpful comments on the paper. The Economic Journal © 1995 Royal Economic Society

Journal

Economic Journal – Oxford University Press

Published: Mar 1, 1995

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