Intermediation by Aid Agencies
27 Pages Posted: 8 Mar 2005
Date Written: December 2004
This Paper models aid agencies as financial intermediaries that do not make a financial return to depositors, since the depositors' concern is to transfer resources to investor-beneficiaries. This leads to a significant problem of verification of the agencies' activities. One solution to this problem is for an agency to employ altruistic workers at below-market wages: workers can monitor the agency's activity more closely than donors, and altruistic workers would not work at below-market rates unless the agency were genuinely transferring resources to beneficiaries. We consider conditions for this solution to be incentive compatible.
Keywords: Signalling, non-profit, wage differential, donations, altruism, two-sided market
JEL Classification: D21, D64, J31, L31
Suggested Citation: Suggested Citation