Publications [#167084] of Sarah B. Bermeo

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Other Working Papers

  1. "Utility Maximization and Foreign Aid."   (November, 2007).
    (last updated on 2009/12/16)

    Abstract:
    This paper argues that developed countries use foreign aid to foster “strategic development”, i.e. development abroad that returns material benefits to aid donors. I first develop the idea of strategic development and then show that much of the literature has confused non-altruistic motives with non-development motives: many of the previous findings on aid allocation actually support the idea of strategic development, while at the same time presenting evidence that altruism plays a minor role in aid allocation. I then develop a model that allows donor utility with respect to aid to be increasing in both development and in non-development concessions that the recipient supplies to the donor in exchange for aid. A surprising conclusion follows once we allow donors to pursue multiple strategic objectives with aid dollars. The model developed here suggests that in situations where multiple recipients could serve as substitute providers of a non-development good that is paid for (partially) through aid donations, the donor will choose the recipient that offers the highest returns in terms of development to provide the non-development good. This implies that potential development motives of donors have been dismissed too easily based on the correlation between development aid and non-development dyadic considerations.

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