Wednesday, October 20, 2010

Aid Incentives Matter (?)

. Wednesday, October 20, 2010

Here’s the simple version: If people give you money because of A, then you don’t do anything to stop A. Even better, make A bigger so you get more money. ...

What’s interesting in Polman’s book is the way that warlords and crooked politicians [in the developing world] are actively making poor people worse off, to raise their profile and increase the flow of “do something!” money funneled through the Angelina-Bono-Geldof-Sachs pipeline.

That's David Zetland at William Easterly's place, building off of his short Public Choice piece (pdf). More discussion is here. The Jolie/Bono/Geldof/Sachs money is then appropriated by warlords and crooked politicians of course rather than going to the needy. Thus the needy stay needy, so they get more aid, which is also stolen by warlords, etc. It can be a vicious cycle.

The argument is that aid actually encourages oppression from autocrats, because they get more aid the more destitute and brutalized the populace is. More research is clearly needed on the question, but the I think the hypothesis is plausible. It reminded of this Acemoglu/Robinson paper (pdf), which I don't think is very convincing but points towards a similar dynamic whereby leaders actively harm their populations in order to secure positions of power.

I don't think we know enough yet to judge how prevalent this phenomenon is, but apparently Linda Polman makes the case in a new book that it's common enough to take seriously. I haven't read the book so I can't comment on it, but there is a logic here that is hard to dismiss out of hand.


Christopher Dittmeier said...

There is, however, a method of humanitarian aid that has a provenly-better track record at improving the quality of life in the LDCs---subsidiary aid. By bypassing the government and giving money directly to civil society and NGOs, this type of aid directly strengthens the "ground level" while lessening the amount of funds appropriated by the elite. That's not to say that "warlords and crooked politicians" make no gain out of this---they can still oppress the population and extract rents---but bypassing corrupt governments minimizes the moral hazard and avoids a surefire way to lose funds to rent-seeking.

David Zetland said...

...assuming that subsidiaries are also not corrupt.

Can't just kick the can down the road.

Better to let people help themselves than to "help" them with aid :)

Aid Incentives Matter (?)
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