Buying Influence: Aid Fungibility in a Strategic Perspective

Authors

  • Rune Jansen Hagen

    1. Institute for Research in Economics and Business Administration, Breiviksveien 40, 5045 Bergen, Norway. Tel/Fax: +47 55959506/+47 55959439; E-mail: runej.hagen@snf.no.
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      Hagen: Institute for Research in Economics and Business Administration, Breiviksveien 40, 5045 Bergen, Norway. Tel/Fax: +47 55959506/+47 55959439; E-mail: runej.hagen@snf.no. Discussions with Kaushik Basu and Magnus Hatlebakk on the issues concerned have been very useful. I would also like to thank two anonymous referees, Kjetil Bjorvatn, Bård Harstad, Karl Rolf Pedersen, Gaute Torsvik, Bertil Tungodden, Espen Villanger, and participants at the annual meeting of the Norwegian Economic Association 2000, the Bergen seminar on development economics, and the Research Council of Norway's Multi-Conference 2002 for constructive criticisms of the many previous versions of this paper. I still retain full responsibility for the contents of this paper. The research reported here has been financed by the Research Council of Norway.


Abstract

I study equilibria of non-cooperative games between an aid donor and a recipient when there is conflict over the allocation of their combined budgets. The general conclusion is that a donor's influence over outcomes is increasing in the share of the available resources it controls; if this share is large enough, aid fungibility is not important as the donor achieves its most preferred allocation. The game-theoretic approach to fungibility is contrasted with the traditional non-strategic approach. I argue that the former is superior as it derives final allocations instead of assuming them, making analysis of the sources of influence over outcomes possible.

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