15 Pages Posted: 16 Apr 2007
Date Written: April 15, 2007
International aid travels from donor to recipient through a chain of middlemen. Middlemen play two roles: as agents delivering aid and as principals monitoring other middlemen delivering aid. As the quality of middlemen falls, shirking (theft) increases, and aid effectiveness falls. While quality has an unambiguous, positive impact, the relative effectiveness of different monitoring techniques is not obvious.
I compare different monitoring techniques in simulations of multiple middlemen interacting over many periods. Simulations improve our intuitive understanding of non-equilibrium dynamics and evolution; they also help us rank monitoring techniques. The most-efficient monitoring technique - tolerating some but not too much waste - performs better than either overly-strict or more-clever alternatives.
Keywords: International development aid, monitoring, moral hazard
JEL Classification: F35, O19
Suggested Citation: Suggested Citation
Zetland, David, Pointing Fingers: Monitoring, Evolution and Efficiency Among 15 Middlemen (April 15, 2007). Available at SSRN: https://ssrn.com/abstract=980562 or http://dx.doi.org/10.2139/ssrn.980562