Foreign Aid and Policies under Asymmetric Information

Montanari, Lisa (2008) Foreign Aid and Policies under Asymmetric Information. Bologna: Dipartimento di Scienze economiche DSE, p. 23. DOI 10.6092/unibo/amsacta/4605. In: Quaderni - Working Paper DSE (642). ISSN 2282-6483.
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Abstract

It is often difficult for external agents understanding to what extent the preferences of a government are directed towards welfare enhancing policies and reforms. I develop a principal-agent model in which a domestic lobby attempts to in.uence the government.s policy choices by means of monetary transfers while the weight the government attaches to public welfare is private information. I observe that asymmetric information generally leads to a larger policy distortion in equilibrium. This simple setting serves as a benchmark for the comparison with a commom agency framework. An International Financial Institution giving policy conditional aid to the government is included as an additional principle in the analysis. Its policy objective is in conflict with the lobby's one. Whether the equilibrium distortion results lower or higher depends on the range of uncertainty over the government's preferences and on the degree of benevolence of the government.

Abstract
Document type
Monograph (Working Paper)
Creators
CreatorsAffiliationORCID
Montanari, Lisa
Keywords
foreign aid, asymmetric information, policy distortion, common agency
Subjects
ISSN
2282-6483
DOI
Deposit date
15 Feb 2016 13:56
Last modified
15 Feb 2016 13:56
URI

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