Competition and Collaboration in Aid-for-Policy Deals

Despite the extensive empirical and theoretical research into foreign aid, there remains little or no formal analysis of aid giving in a competitive donor environment. We endeavor to fill this lacuna with both a model and empirical analysis of aid-for-policy deals with rival aid donors. The model indicates that a dominant donor captures all the surplus from any deal. We test several hypotheses that follow from the model. We demonstrate that the United States paid less (in constant dollars) and gained more in policy terms through aid before the Soviet Union became a significant aid player. Once the Soviet Union became a player in the international aid arena, the United States paid more for aid and got less by way of security concessions from recipients.