Abstract
Aid conditionality refers to the practice of donors attaching conditions to enhance the effectiveness of aid. The donor’s prime objective is to reduce poverty, but recipients want to divert some of the aid to elites. This gives rise to two problems: adverse selection (aid does not go to the recipients who will make best use) and moral hazard (recipients can misuse the aid). The article reviews how aid conditionality can address these problems, and briefly considers empirical evidence.
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Morrissey, O. (2018). Aid Conditionality. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95189-5_2871
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DOI: https://doi.org/10.1057/978-1-349-95189-5_2871
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