Evaluation Bias and Incentive Structures in Bi- and Multi-Lateral Aid Agencies

Abstract

Evaluation is generally considered as an important tool to ensure the effective use of development aid, but it is itself subject to distortions. To derive institutional conditions conducive to effective evaluation, we develop a multi-level principal-agent model focusing on the interests of the different actors involved in the evaluation process. The model highlights two central problems: (i) the aid agencies' conflicting objectives of transparency and self-legitimization, and (ii) the potential collusion between the evaluator and the project manager. Evidence for the World Bank and different German donor agencies reveals concrete institutional requirements for a reduced evaluation bias and increased transparency.