Abstract
During the 1980s, the United States spent substantial political and economic capital supporting the Nicaraguan Contras. How effective was this in helping the rebels take on the Sandinista government? This article explores this topic by extending the application of principal-agent theory. It finds that, as expected, the effect of U.S. assistance was undermined by adverse selection and agency losses. However, the most important factor that undermined support effectiveness was the great inconsistency of the level of U.S. aid awarded to the insurgents. Reductions of official U.S. government support led to insurgency campaign collapse and meant that, in the end, the U.S. support program was only partially effective in helping the Contra struggle.
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