International aid and political economy: The Market for Aid
International aid and political economy: The Incentives of Donors and Aid Agencies
International aid and political economy: The Interaction between Donors and Country Recipients
International aid and political economy: The Delivery of Aid in the Recipient Countries
Some authors have argued that a possible solution to the agency problems in the aid industry is to increase competition among aid agencies (Klein and Harford 2005) and recipient countries (Svensson 2003) and use competition to make the market work better. Aid agencies should compete to fund the best projects, enabling donors to channel funds through the agencies that produce the best results; and developing countries should compete to receive official aid. This increase in competition, if accompanied with improvedmonitoring and benchmarking of aid agencies and proper evaluation of outcomes for the projects, may alleviate some of the incentive problems originated by the multiple layers of delegation in the delivery of foreign aid.
Notice that this does not contradict the need for coordination among the donors. Competition is good in the sense that recipient countries will choose the most efficient project, and therefore will end up with the best donor for them. So, the existence of many donors competing for recipients does not imply thatmany donors will be deliveringmoney to the same project, but only the most efficient one.