Recent empirical studies reveal that effectiveness of aid on growth is ambiguous. This paper considers aid proliferation - excess aid investment relative to recurrent cost - as a potential cause that undermines aid effectiveness, because aid projects can only produce sustainable benefits when sufficient recurrent costs are disbursed. We consider the donor's budget support as a device to supplement the shortage of the recipient's recurrent cost and to alleviate the misallocation of inputs. However, when donors have self-interested preferences over the success of their own projects to those conducted by others, they provide insufficient budget support relative to aid which results in aid proliferation. Moreover, aid proliferation is shown to be worsened by the presence of more donors.
We conducted framed field experiments in Vietnam to capture the role of joint liability, monitoring, cross-reporting, social sanctions, communication and group formation in borrowers’ repayment behavior. We find that joint liability contracts cause serious free-riding problems, inducing strategic default and lowering repayment rates. Even after introducing a cross-reporting system and/or penalties among borrowers, people are still more likely to chose strategic default than under individual lending. We also find that joint liability lending often failed to induce mutual insurance among borrowers. Those who had been helped or who had repaid a little in the previous round were more likely to default strategically and repay a little again in the current round and those who paid large amounts were always the same individuals.
We consider rank-order contests with heterogeneous agents, focusing on the optimal accuracy of output signals. As opposed to the absolute performance evaluation, we show it is optimal for the principal to deliberately make the signals noisier according to the degree of heterogeneity.
In less developed countries, it is widely observed that employers hire workers through employee referrals. In this paper, we show an extension of this kind of networks may decrease applicants’ payoffs while a diversification of the networks can raise referred applicants’ payoffs. We also discuss the effect of the extension of interlinked contracts on farmers’ wages.