Limits of Conditionality in Poverty Reduction Programs

When donors and recipients have different preferences over budgetary allocations, conditionality helps the implementation of donor-financed poverty reduction programs. However, if donors cannot perfectly monitor all recipients' actions, conditionality entails an inefficient allocation of resources. Under such conditions, the optimal amount of conditionality varies (often not monotonically) with the recipients' degree of social commitment. Finally, if recipients' preferences are not observable, conditionality can be used to prevent recipients with a weak commitment to poverty reduction from obtaining aid funds. This may however lead to further distortions in terms of resource allocation and to phenomena of "aid rationing."
Publication date: July 2002
ISBN: 9781451853872
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Economic Conditions , Economic Conditions , Public Policy - Social Services and Welfare , Public Policy - Social Services and Welfare , Asymmetric Information , social spending , poverty alleviation , Information And Uncertainty , Welfare And Poverty

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