The Samaritan's Dilemma The Political Economy of Development Aid

by Gibson, Clark C.; Andersson, Krister; Ostrom, Elinor; Shivakumar, Sujai

• ISBN13: 9780199278855
• ISBN10: 0199278857
• Format: Paperback
• Copyright: 2005-11-03
• Publisher: Oxford University Press

Summary

The authors argue that much of foreign aid's failure is related to the institutions that structure its delivery. They explore the workings of Sida and find that Sida's institutions lead to perverse incentives and poor outcomes in the field. The authors offer concrete suggestions about how to improve aid's effectiveness.

Author Biography

Clark Gibson is Associate Professor of Political Science and Director of the International Studies program at the University of California, San Diego. He is currently a member of the American Political Science Association Executive Committee. He has held positions at Indiana University and acted as a consultant for the World Bank, the United States Agency for International Development, and the Carter Center. Krister Andersson has worked with development aid issues since 1991. He has served as an international civil servant and consultant for the Food and Agriculture Organization of the United Nations, the World Bank and non-governmental organizations in Bolivia, Costa Rica and Sweden. He served as a technical advisor on environmental conflicts in Ecuador's Ministry of the Environment in 1997-1998. A postdoctoral fellow at the Center for the Study of Institutions, Population and Environmental Change (CIPEC) at Indiana University, he studies the politics of international development and environmental governance in non-industrial societies. Elinor Ostrom is Arthur F. Bentley Professor of Political Science and Co-Director of the Workshop in Political Theory and Policy Analysis, and the Center for the Study of Institutions, Population, and Environmental Change at Indiana University, Bloomington, Indiana. Sujai Shivakumar received his doctorate in Economics from George Mason University, specializing in Constitutional Political Economy, and later pursued post-doctoral research in the political economy of development at the Workshop in Political Theory and Policy Analysis at Indiana University. He is currently an official with the US National Academies' Board on Science, Technology, and Economic Policy.

Table of Contents

List of Boxes	xvi
List of Figures	xvii
List of Tables	xviii
List of Acronyms and Abbreviations	xix
List of Contributors	xxi
Part I. Introduction
1. What's Wrong with Development Aid?	3	(128)
1.1. Rethinking development aid	3	(2)
1.2. Incentives, development aid, and the plan of this book	5	(2)
1.2.1. Perverse incentives in day-to-day interactions
1.2.2. Perverse incentives in the policy process
1.2.3. Perverse incentives in the development aid system
1.2.4. Perverse incentives in donor agencies
1.2.5. Cases in recipient countries
1.3. Five key concepts for the institutional analysis of development aid	7	(6)
1.3.1. Institutions (and their close cousins)
1.3.2. Incentives
1.3.3. Development, development aid, and development cooperation
1.3.4. Sustainability
1.3.5. Ownership
1.4. Promoting development	13	(5)
1.4.1. Missing money?
1.4.2. Missing institutions?
1.4.3. Collective-action situations and development
1.4.4. Ownership and collective action
1.5. Conclusion	18	(5)
Part II. Theoretical Foundations
2. Laying the Theoretical Foundations for the Study of Development Aid	23	(26)
2.1. Introduction	23	(1)
2.2. An overview of the institutional analysis and development framework	24	(1)
2.3. Doing institutional analysis	25	(10)
2.3.1. Actors and action situations
2.3.2. Explaining outcomes within an action arena
2.3.3. The concept of rules
2.3.4. Biophysical/material conditions
2.3.5. Attributes of a community
2.4. Motivational problems at the operational level	35	(6)
2.4.1. Public goods and free-riding
2.4.2. Common-pool resource problems
2.4.3. The Samaritan's Dilemma
2.4.4. Asymmetric power relationships
2.5. Information problems at an operational level	41	(5)
2.5.1. Missing information and local knowledge
Moral hazard
Principal-agent situations
2.5.2. Asymmetric information about characteristics
Adverse selection
Signaling problems
2.6. Solving operational-level problems	46	(3)
3. Better Development Through Better Policy? Development Aid's Challenges at the Collective-Choice Level	49	(12)
3.1. Introduction	49	(1)
3.2. Changing unproductive situations at the collective-choice level	50	(3)
3.3. Missing, weak, or bad institutions	53	(1)
3.4. Motivational problems at the collective-choice level	54	(2)
3.4.1. Rules as public goods
3.4.2. Rent seeking
3.4.3. Corruption
3.5. Informational problems at the collective-choice level	56	(1)
3.5.1. Missing and asymmetric information
Fiscal illusion
3.5.2. Translating preferences into outcomes—the impossibility theorem
3.6. Enter the donor	57	(4)
4. Sorting Out the Tangle: Incentives Across Action Situations in Development Aid	61	(26)
4.1. Introduction	61	(1)
4.2. The chain of aid delivery	62	(1)
4.3. The international development cooperation octangle	63	(12)
4.3.1. The full octangle
4.3.2. The donor-recipient negotiation arena
Strong donor—strong recipient
Strong donor—weak recipient
Enlightened donor—weak recipient
4.3.3. Principal-agent arenas within donor and recipient countries
Principal-agent relations—politicians and bureaucrats
Principal-agent relations—owners, donor agencies, and contractors
4.3.4. Beneficiaries
Links between beneficiaries and government
Linking governments to citizens and interest groups
4.3.5. Competition among donors
4.4. Applying the IAD framework to analyze the donor-recipient dyad	75	(9)
4.5. Conclusion	84	(3)
5. A Formal Analysis of Incentives in Strategic Interactions Involving an International Development Cooperation Agency, Roy Gardner and Christopher J. Waller	87	(25)
5.1. Introduction	87	(1)
5.2. Strategic implication of altruism for results	88	(7)
5.2.1. Aid in a one-shot game: The Samaritan
5.2.2. Aid in a repeated game: The Samaritan's Dilemma
5.2.3. Principal-agent problems in one-shot games
5.2.4. Principal-agent problems in repeated games
5.3. Foreign aid as a substitute for borrowing in capital markets	95	(4)
5.3.1. Aid conditionality
5.3.2. Aid tournaments
5.4. Externalities and market failures	99	(9)
5.4.1. Public good problems
5.4.2. Common-pool resource (CPR) problems
5.4.3. Corruption
5.5. Coordinated aid	108	(1)
5.6. Equity considerations	109	(1)
5.7. Warm-glow effects	110	(1)
5.8. Conclusion	111	(1)
6. All Aid is Not the Same: The Incentives of Different Types of Aid	112	(19)
6.1. Introduction	112	(1)
6.2. Aid as "carrots and sticks"	112	(2)
6.3. The configuration of aid capital	114	(1)
6.4. The characteristics of aid	115	(5)
6.4.1. Grants, credits, and guarantees
Grants
Credits
Guarantees
6.4.2. Tied-aid—Issues and incentives
6.4.3. Aid conditionality—Ex ante versus ex post
6.5. The modalities of aid	120	(7)
6.5.1. Project aid
6.5.2. Program aid
6.5.3. Sector-wide approaches
6.5.4. Humanitarian assistance
6.5.5. Technical cooperation
6.6. Conclusion	127	(4)
Part III. Case Studies
7. Applying the IAD Framework: The Incentives Inside a Development Agency	131	(29)
7.1. Introduction	131	(1)
7.2. Methods	132	(1)
7.3. Using the IAD framework to study the organization of a development agency: Sida	133	(4)
7.3.1. Sida as an agent of the Swedish government and its people
7.3.2. Looking inside Sida
7.4. Contextual variables and their influences on action arenas	137	(4)
7.4.1. Institutional factors influencing action arenas
7.4.2. Cultural factors influencing the action arenas
7.4.3. Biophysical characteristics influencing the action arenas
7.5. Patterns of interactions: Incentives for learning about sustainable outcomes	141	(9)
7.5.1. A highly motivated staff
Individual learning about sustainability
Empirical evidence on the conditions for individual learning about sustainability
Short-term assignments
Communication after an assignment
Temporary contracts
Retention and recruitment of younger staff
Career advancement criteria related to performance of past projects
7.6. Organizational learning through formal evaluations	150	(1)
7.7. Empirical evidence on organizational learning through evaluations	151	(2)
7.8. A formal evaluation process without much learning	153	(1)
7.9. Budgetary processes oriented toward sustainability	154	(2)
7.10. Conclusions	156	(4)
8. Incentives for Contractors in Aid-Supported Activities, Krister Andersson and Matthew R. Auer	160	(11)
8.1. Introduction	160	(1)
8.2. The place of contractors in aid programs	161	(1)
8.3. Incentives for contractor performance	162	(3)
8.3.1. Pre-design phase
8.3.2. Design phase
8.3.3. Implementation phase
8.4. Incentive incompatibilities: Control versus ownership	165	(1)
8.5. Contractors' incentives and the prospects for sustainability	166	(1)
8.5.1. Is a consultant-directed project likely to be sustainable?
8.5.2. What is the role of the consultant in ownership?
8.6. The Sida contractors' perceptions	167	(4)
8.6.1. "For whom do we work?"
8.6.2. Contractors' perceptions of relationship to Sida
8.6.3. What makes a consultant tick?
9. Sida Aid in Electricity and Natural Resource Projects in India	171	(27)
9.1. Using institutional analysis	171	(1)
9.2. Sweden's development cooperation with India	172	(2)
9.2.1. Changing strategic interests in bilateral development assistance
9.2.2. Aid and institutional reform in the states
9.3. Capacity building for participatory management of degraded forests in Orissa	174	(10)
9.3.1. History of the project
9.3.2. An institutional analysis of the Orissa Capacity Building Project
The action arena
Rules-in-use--A return to community-based forest management
9.3.3. The role of key actors
The Orissa Forest Department
The government of Orissa
Sida
Scandiaconsult Natura
NGOs
9.3.4. Interactions within the octangle
The Sida—Orissa Forest Department—forest communities triad
The Sida—Scandiaconsult Natura—Orissa Forest Department triad
9.3.5. Implications for ownership and sustainability
9.4. The Chandrapur–Padghe HVDC Converter Terminal Project	184	(10)
9.4.1. History of the project
9.4.2. An institutional analysis of the Chandrapur–Padghe Project
The action arena
Rules-in-use: Governance in the power sector
A free-rider problem
9.4.3. Interactions within the octangle
The recipient government—MSEB—interest group triad
The donor government—Sida—special interests triad
The donor—other donors—recipient triad
The contractor at the center
Recipient beneficiaries
9.4.4. Implications for ownership and sustainability
9.5. Conclusions	194	(4)
10. Sida Aid in Electricity and Natural Resource Projects in Zambia	198	(25)
10.1. Introduction	198	(1)
10.2. Zambia's experience with development cooperation	198	(2)
10.2.1. Sweden's role in Zambia's development
10.3. The Zambian ERB	200	(7)
10.3.1. History of the ERB project
10.3.2. An institutional analysis of the ERB
Actors and the action situation
Influences on the action arena
10.3.3. Patterns of interaction: Incentives and the ERB
Incentives of government
Incentives of ZESCO
Incentives of the ERB
Incentives for the public and interest groups
Incentives for Sida
10.3.4. Outcomes: Implications for ownership and sustainability
10.4. The Kafue Gorge Hydropower Station Rehabilitation Project	207	(4)
10.4.1. Project history
10.4.2. An institutional analysis of the KGRP
The action arena
Influences on the action arena
10.4.3. Patterns of interaction
Incentives of government
Incentives of ZESCO
Incentives for Sida
Incentives for Swedpower
10.4.4. Outcomes: Implications for ownership and sustainability
10.5. The CFU	211	(8)
10.5.1. History of the project
10.5.2. An institutional analysis of the CFU
Action arena
Influences on the action arena
Community attributes
Institutional context and rules-in-use
10.5.3. Patterns of interaction: Incentives and the CFU project
Incentives of CFU project managers
Incentives for MAFF
Incentives for Sida
Incentives for conservation farming promoters
10.5.4. Implications for ownership and sustainability
10.6. Conclusions	219	(4)
Part IV. Conclusion
11. What Have We Learnt About Aid?	223	(12)
11.1. Awareness of the role of incentives	224	(1)
11.2. The nature of the good	225	(1)
11.3. Ownership and sustainability	226	(3)
11.4. Encouraging learning at the individual and organizational levels	229	(2)
11.5. The role of consultants	231	(1)
11.6. Putting beneficiaries first	232	(3)
Bibliography	235	(18)
Index	253