Abstract
This paper analyzes the conditions under which reputation concerns induce donors and recipients to respect conditional aid contracts. Donors enforce conditionality if the benefits of improving compliance in future contracts thanks to a tougher reputation exceed the costs of resisting disbursement pressure. The level of conditionality enforcement is optimal if all the costs and benefits of reputation building are internalized by the decision maker. This condition is not satisfied at the World Bank and the IMF, where enforcement is decentralized to country departments which do not internalize the benefits of a tough reputation on other departments. Recipients comply with conditionality if the costs of implementing conditionality are lower than the benefits of securing tranche release thanks to compliance and obtaining future contracts thanks to a good reputation for compliance. Reputation concerns increase recipients’ incentives to comply only if there is some uncertainty on future aid commitments, which is true for successive single-tranche contracts, but not for multi-tranche contracts.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
