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Does Foreign Aid Harm Local Institutions? External Subsidies, Giving Behavior, and Social Norms in a Lab Experiment

45 Pages Posted: 17 Mar 2017  

Blaine G. Robbins

New York University Abu Dhabi

Aaron Kamm

New York University (NYU) - New York University Abu Dhabi

Daniel Karell

New York University Abu Dhabi

Simon Siegenthaler

New York University Abu Dhabi; University of Texas at Dallas, Naveen Jindal School of Management

Date Written: March 15, 2017

Abstract

Evidence for the long-term effects of foreign aid on local communities is mixed. In a laboratory experiment, we investigate whether external subsidies, e.g. foreign assistance, promote or undermine giving. Subjects play two rounds of a dictator game followed by an elicitation of norms. In both rounds, leaders allocate earned endowments to passive recipients. With a between-subject design, we vary the presence of a subsidy and compare wealth redistribution to public good provision. We find that subsidizing public good provision increases giving, while subsidizing wealth redistribution does not. Furthermore, subsidies do not undermine giving or norms about giving in the long-term.

Keywords: External Transfers, Subsidies, Wealth Distribution, Public Good Provision, Giving Behavior, Social Norms, Dictator Game

JEL Classification: C91, D64, H40, O10

Suggested Citation

Robbins, Blaine G. and Kamm, Aaron and Karell, Daniel and Siegenthaler, Simon, Does Foreign Aid Harm Local Institutions? External Subsidies, Giving Behavior, and Social Norms in a Lab Experiment (March 15, 2017). Available at SSRN: https://ssrn.com/abstract=2932974 or http://dx.doi.org/10.2139/ssrn.2932974

Blaine G. Robbins (Contact Author)

New York University Abu Dhabi ( email )

PO Box 129188
Abu Dhabi
United Arab Emirates

Aaron Kamm

New York University (NYU) - New York University Abu Dhabi ( email )

PO Box 129188
Abu Dhabi
United Arab Emirates

HOME PAGE: http://sites.google.com/site/akammhome/

Daniel Karell

New York University Abu Dhabi ( email )

PO Box 129188
Abu Dhabi
United Arab Emirates

Simon Siegenthaler

New York University Abu Dhabi ( email )

Saadiyat Island
Abu Dhabi
United Arab Emirates

HOME PAGE: http://www.simonsiegenthaler.com

University of Texas at Dallas, Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

HOME PAGE: http://www.simonsiegenthaler.com

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