Limits of Conditionality in Poverty Reduction Programs, Issues 2002-2115
International Monetary Fund, 2002 - Aide économique - Modèles économétriques - 23 pages
When donors and recipients have different preferences over budgetary allocations, conditionality helps the implementation of donor-financed poverty reduction programs. However, if donors cannot perfectly monitor all recipients' actions, conditionality entails an inefficient allocation of resources. Under such conditions, the optimal amount of conditionality varies (often not monotonically) with the recipients' degree of social commitment. Finally, if recipients' preferences are not observable, conditionality can be used to prevent recipients with a weak commitment to poverty reduction from obtaining aid funds. This may however lead to further distortions in terms of resource allocation and to phenomena of "aid rationing."
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able to impose absence of aid aid contract aid programs aid rationing aid recipient aid/debt relief allocate amount of aid amount of conditionality amount of resources assume asymmetric information Azam and Laffont component of social constraint is binding context credibly signal debt relief degree of social denote denying aid design conditionality donor community donor imposes donor's inability donors and recipient effect of aid ex ante exactly binding excessive or insufficient Federico follows forms of aid granted aid granting relief HIPCs impose a level imposing conditionality increases monotonically lead to forms Lemma level of conditionality level of social maximize objective function obtain aid optimal amount optimal level order conditions poverty reduction program recipient country governments recipient government recipient government’s recipient's social commitment recipient’s type screening device social expenditure social preferences social programs social spending solution of problem Svensson 2000b totally differentiating type is observable utility function World Bank