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Donor Strategy under the Fungibility of Foreign Aid
Article first published online: 17 JUN 2004
DOI: 10.1111/j.1468-0343.2004.00138.x
1468-0343/asset/cover.gif?v=1&s=bef4eedb9182237adaadec2f591d63fd04caaf4b "Economics & Politics")
Additional Information
How to Cite
Lahiri, S. and Raimondos-Møller, P. (2004), Donor Strategy under the Fungibility of Foreign Aid. Economics & Politics, 16: 213–231. doi: 10.1111/j.1468-0343.2004.00138.x
Publication History
- Issue published online: 17 JUN 2004
- Article first published online: 17 JUN 2004
- Abstract
- References
- Cited By
We develop a political–economic model of aid fungibility: a part of aid is diverted away from its intended target by lobby groups. The size of this diversion – the degree of aid fungibility – is determined endogenously by the recipient government. The donor can affect the equilibrium degree of fungibility by choosing both the size of aid and the timing of its decision. We derive a condition under which the donor's reaction to fungibility is to reduce the amount of aid. Under this condition, if the donor acts as a follower, both the donor and the target group are better off.