week 4 Foreign Aid : Flashcards
(9 cards)
How do countries show development ? what improves ?
focus on improving the potential for the population E.g Healthcare, education and working conditions
what is the theory of the Big push ?
Underdeveloped countries are stuck in a cycle, they require a lot of investment to achieve economic development. “Bit by bit” investment achieves nothing, but one big push leads to self sustained growth → this idea creates “aid optimism”
What is Elinor Ostrom’s take on Aid ?
Collective action situations are at the heart of issue
Provision of public goods (public safety, health, infrastructure, etc.)
Protection and maintenance of common-pool resources (e.g. an irrigation system or fishing grounds)
The governing regime, especially a corrupt one, will not provide/protect/maintain these
Optimally.
Who pays for import Tariffs ?
Large countries - can dictate
Small countries - can’t dictate
what are the maid problems of Aid ?
Incentive / knowledge
Aid faces two kinds of obstacles from both donors and
recipients in this context
Incentive problems :
Donors: e.g. ulterior motives, no care for effectiveness
Recipients: e.g. misuse of aid, enact bad policies
Knowledge problems :
Donors: e.g. what to give and to whom?
Recipients: e.g. how to distribute and make use off?
The Samaritan’s Dilemma, a game-theoretic model,
highlights a key incentive problem between donors and
recipients
What is the Samaritan’s Dilemma ?
The donor (“Samaritan”) acts out of concern for the benefit
of others.
By giving aid, the donor hopes to help the poor people
under distress.
The recipient (governing regime) decides how much effort
to make itself to relieve the situation.
Both parties benefit if aid is given.
The donor prefers high effort, but for the recipient this is
costly.
Example: Provision of emergency food aid and allocation
of resources to increase agricultural productivity.
What does the Nash equilibrium state ?
Is always Low effort and Aid, so are you better off switching to another alternative.
all about if “Am I better off deviating” that there is no profitable deviation for any player
How do you make sure people honour their promise An extensive-form game ?
How do you make sure people honour their promise with these :
Make sure it’s repeatable → incentive to reform
By building infrastructure construction and long term development
What is Raschky & schwindt (2016) Aid, samaritan’s dilemma, catastrophes ?
Analyses the impact of past foreign aid on the recipient country’s preparedness against natural disasters.
The occurrence of natural disasters and the death toll from 5089 major natural disasters in 81 developing countries between 1979 and 2012.
Past foreign aid flows crowd out the recipient’s incentives to provide protective measures that decrease the likelihood and the societal impact of a disaster.
The crowding-out effect appears to be stronger in developing countries that are relatively poorer and have weaker political institutions.
