18. DT. Political Economy of Aid

8/12/2019 18. DT. Political Economy of Aid

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International Organization Foundation

A Political Economy of AidAuthor(s): Bruce Bueno de Mesquita and Alastair SmithSource: International Organization, Vol. 63, No. 2 (Spring, 2009), pp. 309-340Published by: Cambridge University Presson behalf of the International Organization FoundationStable URL: http://www.jstor.org/stable/40345936.

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A PoliticalEconomyofAidBruceBueno deMesquita ndAlastair mithAbstract We modelhowthe izeof a leader's upportoalition ndgovernmentrevenues ffect rades etween olicy oncessionsndaid. Wefindhat id benefitsdonor ndrecipienteaders,whileharmingherecipient's,utnot hedonor's, iti-zenry. he willingnesso grant olicyconcessions or id depends n howeasilyleaders an reimburseupportersor heir oncession.As coalition ize increases,incumbentselymoreon publicgoodstoreward upporters, akingt difficultocompensateor olicy oncessions. mall-coalitioneaders elymore nprivate oodsto retain ffice,makingteasierfor hemogrant olicy oncessions or id.Empir-ical tests fbilateral id transfersy OrganizationorEconomicCooperationndDevelopmentOECD) nations etween 960and 2001 supporthepredictionshat(1) aid is givenby wealthy, arge-coalitionystems;2) relatively oor,small-coalitionystemsremost ikely oget id; but, 3) conditionalnreceivingid,theamountncreases s the ecipient'soalitionize,wealth,ndpolicy alience ncrease.Evidence uggestshatOECD members ave ittle umanitarian otivationor idgiving.

United tatesforeignconomic ssistance,xclusive f funds or hereconstruc-tionofIraq,representsnlyabout0.2 percent fgrossnational roductGNP)andless than1 percent f federal udget utlays.AlthoughheUnited tates sthe argest id giver n dollar mounts,toften s the smallestOrganizationorEconomicCooperationndDevelopmentOECD) donor n terms fpercentageof GNP.But then venthemostgenerous onors n percentageerms,uch asDenmarkndNorway, edicate ess than1 percentf theirGNP toforeignco-nomic ssistance. ookedat thisway, t is difficulto anticipatehat id can domuch o advance conomic,ocial,andpoliticalwell-beingnrecipientountriesand, ndeed,tseems, tachieves ittle n thesedimensions.1hepaucity f for-eign ssistance onationss a focalpoint fcurrentolicy ebate,with ome rgu-ingthat hedifficultyith conomic ssistance rogramss a means o alleviatepovertys that he nputs re toomodest o have a significant,asting mpact.2BurnsidendDollar3 uggesthat id is only ffectivetalleviating overty hen

1. See Boone 1996;andEasterly002.2. Sachs 2005.3. BurnsidendDollar2000.Internationalrganization3, Spring 009,pp.309-40 2009byThe 10 Foundation. doi:10.1017/S0020818309090109

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310 Internationalrganization

it s accompaniedy good policieswithin herecipientation; lthoughhis esulthas beenchallenged.4ollarand Levinsuggest onors re ncreasinglyelectivewith espect orecipient olicy nd that his ouldgreatlyeduceworld overty.5Otherslaimgovernment-to-governmentidis thewrongwaytodispense ssis-tancebecauseeithert leads to corruptionntherecipient ation6 nddamageslong-termublicfinance7r it eadstoagencyproblemsnd bureaucraticneffi-cienciesthatundermineovertylleviation.8romthisperspective,hecentralproblemwith idprogramsies not nhowmuch s givenbutratherow tcanbegivenn a mannerhan romotes,atherhan etards,conomic roductivity.ecip-ient nddonormotives estricthe fficacyf aidoutputs.neitherase,whethertheproblems with nputs, utputs,rboth, hesuppositionehind hecurrentdebate eemstobe that t leastdonors,ndperhaps ecipientslso,viewaidpri-marilys an instrumento alleviate overty.Incontrast e argue hat overtylleviations not he ole,orperhapsventhemain, easondonors isperse id.Wedevelop nd test modelofaid-for-policydeals n which onoreaders iveaidtorecipienteaders n returnor olicy on-cessions.Whilequestionable rom normativeerspective,id-for-policyealsare a rational llocation f resourcesnd effortyboth ecipientsnd donors hatadvance he nterestsfpolitical lites neachnation.When id is given or hesepurposes,he id isnotdesignedo relieve overtyndreducemisery. s suchweshouldnotbe surprised hen t fails ofulfill ormativelyesirable oals. nsteadsuch idperpetuatesovertyndpromoteshepolitical urvival f eaders.Wedevelop nd testmplicationsf a new modelderived rom uenode Mes-quitaandcolleagues' electorateheoryfpolitical ompetition.9uenode Mes-quitaandcolleagues peculatedbout heequilibriumonditionsssociatedwithforeignid but offered o formalmodelof theprocess ndonly imited ests ftheir onjectures.uenode Mesquita nd Smithmodeled hepoliticalncentivesfor onor eaders o offerid and for ecipienteaders oaccept t,but hey idnotinclude heprospectfbargainingver he izeofconcessions.10hey estedheirmodel's redictionssingU.S. bilateraliddata.Themodelhere eneralizesuenode Mesquita nd Smith's arliermodelby allowingnations o bargain verthesize ofpolicy oncessions. hisnew,moregeneralmodel eadsto new mplica-tions hat re tested ereusingbilateral id flows rom ll OECD donors.As weshallsummarizeelow, he iteratureuggestshat heUnited tates s motivatedtogiveaid fordifferenteasons han ther tates. ooking cross heOECD, ouranalysis inds o suchdifference. e find hat n all nations,id transfersccur

4. Easterly,evine, nd Roodman 004.5. See Dollar and Levin2006; and Dollar and Collier2002.6. Knack2001.7. Remmer2004.8. See Easterly 006; and Martens t al. 2002.9. BuenodeMesquita t al. 2003.10. BuenodeMesquita ndSmith 007.



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A Political conomy f Aid 311

accordingo thepoliticalurvivalnterestsfdonor ndrecipientovernmentead-ers, s identifiedythe heory. ecipientnddonor eaders eeksubstantiveol-icies and resource llocations hat rotectheir oldonpower. o theextenthatsuchpolicies nd allocations recompatible ith oodeconomic rsocialperfor-mance, heywill make social-welfarenhancing,good" decisions.Yet, suchinstancesre oincidental.ffacedwith contradictionetweenctions hatnhancetheirwnpoliticalwelfare nd actions hat dvance ocietalwell-being,onor ndrecipienteaderswillselect hosepolicies hat enefithemselves.The articleproceeds s follows. n the firstectionwe review hepertinentresearch nforeignid,notinghatno one hasthus arprovided generalmodelthat onsiders imultaneouslyhestrategic olitical nterestsfdonor litesandrecipientlites; hats,thepartieswho must gree ogiveand toaccept id. Thesecond ection ontains simple xpositionf selectorateolitics, he modelofpolitical ompetitiongainstwhichwe consider he urvivalncentives f eadersto trade id forpolicyconcessions. n the third ectionwe present model offoreigniddesigned o answer our uestions:1) Whogivesaid? (2) How muchdo they ive? 3) Whogetsaid? (4) How muchdo they et?The fourthectionexplainshowwe test hemodel'spredictions,hile hefifthection resentsheempirical indings.n ourconcludingectionwe reflectn whatour model andempirical esults uggest bouttheeffectsfforeignid on people n recipientcountries. hen id is given n returnor olicy oncessions,t s a winningrop-osition ordonor olitical lites,donor onstituents,ndrecipient olitical litesbut t is often bane for hecitizenryn mostrecipientountries.We use theseresultsosuggestwhy omany eople naid-receivingocieties eemboth o hatetheU.S. governmentndwishthat hey ouldmigrateotheUnited tates.

LiteratureThat aid is importantn influencingecipient-governmentconomicbehaviorsclear.11he literaturenforeignid's impact n fiscalpolicy ndgrowthdenti-fiespublic-sectoractorshatdiminish hepotentiallyeneficialmpact f eco-nomic ssistance rograms.he mostprominentegative actor s that orruptofficialsend o consume id dollarsrather handisperse hem o stimulateco-nomicgrowth.12hiswould eemtobe a conundrumacing heforeignidcom-munity. ow candonorsmotivateecipientsouse aid money o advance ocialwelfare? resident eorgeW. Bush'smillenniumhallenge rogram which nitsfirst ouryearsdisbursedess than 10 percent f itstarget id incrementfocuseson programsesigned o improve conomicfreedom,nvest n people,

11. See Griffin970;andHeller 1975.12. See Boone 1996;andEasterly002.



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andlead to ust (presumablyemocratic) overnance.13et,thepolitical onse-quencesof aidreceiptsmimic he ffects f theresource urse.14hus, iddimin-ishesthe ikelihood f theustgovernancend democraticeformst s supposedto motivate.Other esearchers,ensitive otheproblemsnherentnconvertingid dollarsinto ffectiveconomic olicies, rgue mplicitlyhatnot ll forms f economicassistance reequally usceptibleo misuse.Mavrotas ndOuattara,or nstance,develop model n which ifferentategoriesf aid havedifferentmpacts ntherecipient'sconomy.15hey ontendhat akingidheterogeneitynto ccount anprovide uidance bout he onversion f aidinto ublic iscal olicy. omeformsofaid are essfungiblend so are esseasilydivertedo unintendedses.Althoughthey o not xplicitlyddress he ssue ofgovernmentisuse faid,their esultssuggesthat ifferentormsfaid ead to differentegrees f economic istortion.Whilemany tudies xamine imitationsnrecipientocieties, nothermpor-tant trand f theaid literatureocuseson donor nterestsatherhanrecipientabuses.McKinley ndLittle, or nstance,nvestigatedhemotivationsorU.S.and Britishidgiving.16heyfoundhat onornterestsominateecipienteeds.Others lso examinedonor nterestsutdistinguishetweenmotivationsehindaid givenbytheU.S. governmentnd economic ssistance ivenbyother tates.Theymaintainhat on-U.S. idgivings substantiallyotivatedyhumanitarianconcerns.17 aizels and Nissanke istinguishhedegree f humanitarianotiva-tion s a functionf whetherid donationsre bilateral r multilateral.18hilesome id is surely istributedo alleviate overtyndsufferingabout12percentof U.S. aidostensiblys targetedpecificallys humanitarianelief the videncesuggests hathumanitarianoncerns re notespeciallyprominent.or instance,theneediesttates o notreceive hemost id19 r even disproportionatelyargeshare. n fact, he verage ank rder orrelationetween ercapita ncome ndper capitaU.S. aid receipts mong id recipients ear-to-yearince 1980is only-0.03. Where recipients inthe ross-nationalncome eckingrder eems rrel-evant ohowmuch idthey et, t eastfromheUnited tates.Perhaps ecauseoffindingsuch s this, esearchersavebegun o examinemore losely hepre-sumeddistinctionetweenU.S. strategicidgiving ndthe llegedhumanitarianmotivationsehind id givenbyother tates.n this egard,t s noteworthyhatsome evidence ontradictsheclaim thatnon-U.S. id is driven yhumanitarianconcerns.While omecontendhat candinavianountriesnparticularivefor-

13. See Millenniumhallenge orporation008.14. See Gelb 1988;Humphreys005;Jensen nd Wantchekon004;Ross 1999;Sachsand Warner1995 and2001; Smith 008; and Bueno de Mesquita nd Smith 009.15. Mavrotas ndOuattara 006.16. See McKinlay nd Little1977 and 1978.17. Lumsdaine 993.18. Maizels andNissanke 984.19. See McKinlay nd Little1977 and 1978.



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eignaid forhumanitarianurposes,20he firstystematicmpiricaltudy f thisquestion inds therwise.chraeder, ook,andTaylor eporthat wedish id isstrongly otivatedy prosocialit deology ndbytrade enefitsimed t coun-triesn which heSwedish mpact an be largerather han nresponse o human-itarianneed.21Hook and Zhang similarly eport hat ven after heJapanesegovernmentnnouncedhattwouldgiveaid fordemocratization,uman ights,and restraintnmilitarypending,tsaidgivings stilldominatedyself-interestratherhan ltruism.22Whetherivenforhumanitarianurposes r for trategiceasons, t does notfollow hat id cannot lso be effectivetending r at leastdiminishingoverty.Burnside ndDollarreporthatwhile id allocations re not tronglynfluencedbythe uality fdevelopmentolicies,good developmentolicies nconjunctionwith id lead tobetterconomic erformance.lesina nd Dollarpress he ssueof aid benefitsurther.heycontrasthe flowof aid with hat fforeign irectinvestmentFDI), finding sharp istinctionetween heuse of FDI andforeignaid.23Countrieswithgood economicpoliciestend o attractignificantoreigninvestment.oreign id, in contrast,s allocated argelywithoutegard o eco-nomic olicy nd nregardothepoliticalndstrategiconsiderationsfthedonor.That till eavesopenthequestion f whether onor nterestseinforceoodeco-nomic olicy, un ounter o t,or areorthogonalo thepoliciespursued y recip-ients. nemightnterprethe indingsyAlesina ndDollar s implyingselectioneffectn aidgiving: ountries ith etterrospectsor rowthttractDI, leavingonly he nferiorandidates orgrowtho receive id. Ifcorrect,hat, fcourse,wouldhelp xplainwhy id seems o ineffectivenpromotingrowth,lthoughtseems ontraryothe erocorrelationetween er apita ncome nd aidreceipts.The modelwedevelop uggestshat notherelectionffects also at workn aidgiving. hepolitical urvivalncentivesf eaders rovidesnequilibriumccountconsistent ith he zerocorrelationetween er capita ncome nd aid receipts,whileexplainingwhogetsaid andhow much heyget n a manner hat arriesdirectmplicationsor hegenerallyoortranslationfaid intogrowth.Themodeldevelopednthenext ection uggestshat ven f a donor s inter-estedn the mplementationfgoodpolicies nrecipientountries,eadersn donornations realso influencedyother onsiderations. uch of thetime, id givingbest erves onor ndrecipientnterestshen tspolicy onsequences un gainstnormativelyesirableutcomes,uch s the eductionfpoverty.ndeed, hemodelsuggests hat id is most ikely o produce heprimarynds sought y donorswhenrecipientsrefree odivert ssistance unds o their ersonal ccounts rthose ftheir oliticallyoyalcronies.

20. See Lumsdaine 993;andNoel andTherien 995.21. Schraeder, ook,andTaylor 998.22. Hook andZhang1998.23. Alesina ndDollar 2000.



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The literatureo date has donea carefulob ofassessing heempirical ecord.Ithas looked at donormotivations.thas separatelyookedatrecipientmotiva-tions. heevidence, owever, asnotbeen tied o anexplicit, eneral heoryhatcan explain id giving ndgettingy simultaneouslynvestigatinghestrategicinterestsnd nterplayf donors ndrecipients. eattemptobuild n the mpor-tantnsightsromhe mpiricaliteratureyconstructinggametheoretic odelthathelpssortout the fundamentalsf aid whilealso leading onovel, establehypotheses.A SelectorateModel of PoliticalSurvivalBefore urningo ourmodelofforeignid,we brieflyummarizehe electoratetheoryn which urapproach oforeignid is built.24histheoryssumes hatpolitical eaders eekto maximize heir enuren office. hetheoryonceives fall polities s beingdependentn two nstitutions,he electoratend thewinningcoalition. he selectorate,, is the et ofpeoplewith potentialay n who s tobe leader. he essential eaturefthe electorates thatt s thepoolof ndividualsfromwhich leaderdraws upporterso form winningoalition,W. ncumbentleadersmustmaintainhe upportf heir inningoalitionrelsetheyredeposed.The size ofboth hewinningoalition nd theselectoratean vary normouslyacrosspolitical ystems.n democratictates, he electorates typicallyll adultcitizens ndthewinningoalitions a relativelyargeproportionfthis elector-ate.The exactproportionfthe selectoratehat eadersrequire o retain owerdepends nthe lectoral ules.Forexample,n a two-partyirectlylected resi-dential ystem,bout 0 percentf the electorateonstituteswinningoalition.In contrast, leader n a single-memberistrict,irst-past-the-postarliamentarysystem nlyneeds bout 5percentupport half hevotes n half hedistrictstocontrol hegovernment.nmonarchiesrmilitaryuntas, electoratesndwinningcoalitions remuch mallerhan ndemocracies,ypicallyeing omposed faris-tocratsrmilitarylites ndkeybureaucrats.utocratictates enerallyaverel-ativelymallwinningoalitions,lthoughelectorateizecanvary reatly.iggedelectoral ystems,or nstance, ave a smallcoalition utoften avea relativelylarge electorate.lthoughtandardegime ype lassificationsreassociatedwithparticularonfigurationsfselectoratend coalition ize,S and W are nherentlycontinuousmeasures. hus, heynotonly llowus todistinguishetween roadand somewhatrbitraryegime lassifications,hey lso allow, nprinciple, is-tinctions etween he nstitutionsithin achclassification,s illustratedyourcomparisonfpresidentialndparliamentaryemocracies.In the electorateheory,ncumbentsacepolitical ivals nd need tomaintainthe upportf their oalition rbedeposed.Tobuy heiroalition's upport,ead-

24. Bueno deMesquita tal. 2003.



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A Political conomy fAid 315

ers allocate he tate's vailableresourcesR) between rivate oods z) andpub-licgoods g). The essential ifferenceetween hese woforms fpolicy rovisionsis thatwhile the atter rovides enefits o all members f society, he formerenrichesnly hosemembers f the oalition owhom hey reallocated.Of course n reality o public policy s either pureprivate rpublic good.However, ne of theessential eatures f selectorateheorys that oalition izeshapes he elative rivatepublic ocus fpolicy. or nstance, hile cleanenvi-ronments a publicgood,environmentalolicy egulationanfocus n eitherheprovision f a clean environmenta public good) or opportunitiesor ecuringbribes nd restricting arket ompetitiono generatemonopoly ents privategoods).Leaders,motivatedya desire o retain ffice,rovide hosepolicies hatbest ewardheir oalitionmembers.When oalition izeis small, eaders angen-erate ighevelsofbenefitsor heirupportersy predominatelyhannelingtateresourcesnto heprovisionfprivate oods.However,s coalition izeincreases,private oodsbecome an increasinglyxpensivemechanism orrewardingup-portersndso leaders hift heir olicy llocations oward greater rovision fpublicgoods.Thetypes fpolicies nduced ypoliticalnstitutionsffect he ase withwhichleadersfulfillheir urvival bjectives. n large-coalitionystems olitical ur-vival s relativelyifficult.incemostof thepolicyrewards re in the form fpublicgoodsthat enefit electorswhether r notthey re in thewinningoali-tion,upporterseopardize nly he mall rivate ortionfthe ewardshey eceiveifthey efect rom he ncumbent.n contrast,n small-coalitionystemshepri-vategoodsfocus ngenders loyalty orm.Whennew eaders ttain ffice heyrequirehe upportfonlyWof the potentialupporters. henW s small andparticularlyhen is large), achsupporterasonly relativelyowprobabilityofbeing ncludedn the new coalition. ince in small Wsystems rivate oodsprovisionsre valuable ndtheprospectsfobtaininghem nder lternativeead-ership rerelativelyow (W/S), upportersn small-coalitionystemsend o beloyal.Aid-for-PolicyealsAgainst hisbackdrop f selectorateolitical ompetition,e now consider idtransfersetween potentialonor,tateA, and a potential ecipient,tateB. Aiddecisions remadeby eaders, otnations,n this ase AL andBL. We conceiveof aiddealsas thegrantingfpolicy oncessions ytherecipientnexchange orcash or n-kind)ransfersythedonor. hroughout,e indexvariables elatingto nationsA andB with ubscript andB respectively.he winning oalitionsizes innations andB areWAyndWB.nitially,eaderAL hasRAresources therdisposal oprovide rivatendpublicgoods.GovernmentesourcesnnationB areRB.Aid-for-policyeals arisefrom hepossibilityfAL transferringomeof herresourceso BL in exchange orpolicyconcessions. onsistent ith he



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literature,25e assume ilateralid s largely ungibleuch hat he ecipienteadercan spend heresources s she sees fit.The leadersuse resourcesoprovide rivatez) andpublic g) goodsfor heirsupporters.ach selector as an additiely separable tility unction verthesegoods:U(g,z) = v(g) + u(z), where ( ) andu{ ) arecontinuous,oncaveutil-ityfunctionsndw(0) = 0. The priceofprovidingublicgoodsis p. Winningcoalition ize provides n implicit riceforprivate oods, s itcharacterizeshenumber f selectorswho receiveprivate oods.Givenresources, , leaders'pol-icyallocationsresubject o thebudget onstraint,g + Wz^ R.In addition oprivatendpublicgoods, electorsare about heir eader'sper-formance n all other ssues relative o a potential olitical ival.We denote hisperformances 6. Forthepurposes fthis rticlewe do notexplicitlymodelaleader'sperformancen theseotherssues,treatingt instead s a random ari-able with istribution(x) = Pr(0 < x), where (x) hasfull upport.The final omponentna selector's valuations whetherheireader btainedor made foreign olicy oncession. heseconcessionsan benumerousndvar-ied,suchas adopting pro-A ecurity osition, referentiallyrading ithnationA, or ending ationA supportninternationalrganizations.apan, or nstance,provides id to a number fnations,ome of which re and-locked,nexchangefor heirupportt the nternationalhaling ommission.26uziemkondWerkerestimate hatnations lected otheUnitedNations ecurity ouncilreceive 59percentncrease n aid from he UnitedStatesdue to their nhanced bility opromote .S. interests.27The model reats olicy oncessionss a publicgoodfor hedonor nda publicbad for herecipient. fcourse, nreality o policy oncessions a purepublicgood; all policyhas redistributiveonsequences. et, eadershaveconsiderablediscretions to howto convertid andpolicy oncessionsnto hepolitical ewardstheydesire.As noted arlier, ilaterial id is generallyungiblen therecipientnation. onor eaders lso have some discretionnconvertingolicy oncessionsbetween ublic ndprivate ewards. uppose,for nstance, donor btains ref-erential ccess to a recipient'smarketsnexchange or id. Suchagreementsreoftenxplicit hroughied id.Therecipientmight avetopurchaseractorsromthedonor.While hepreferentialccessmightenefithedonor's conomyngen-eral,the tied aid benefits ractormanufacturingreas the most.However, onorleaders anoffsethese rivate enefitsomewhatywithholdingther ssistancethatwouldhavegoneto these reas n the bsenceofthe id deal. Obviously,donor eadercould not offset huge private enefit,ut n general hey o notneedto,as theamount f aid to any specific ecipients generallyminiscule.nrichdonornations he effects f aid are small since the amount f aid is small.

25. See Feyzioglu, waroop, nd Zhu 1998;and Pack and Pack 1993.26. "Whaling: ooMuchBlubber," conomistInternetd.), 15 June 006.27. Kuziemko nd Werker 006.



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Despite his,Milner ndTingley ind ongressionalupportorU.S. aid is shapedbyconstituencynterestroups ndtheirffinityor herecipients.28Sincethepolitical ewards romid-for-policyeals aregenerally ungible etreathem s a singlepolicydimension, E [0, 1], inwhichnation 's mostpre-ferredolicy s 0 andnationA's mostpreferredolicy s 1. Forconvenience eassume uadratic references.herefore,f eaderBL implements policyythenall membersf nation receive hepayoff aBy2 andall members fnationAreceive hepayoff crA(\ y)2,where rAndaB representhesalienceof thepolicy ssue n each nation.We can now state he id-for-policyame.Aid-fr- olicyGame

1. AL canpropose n aid-for-policyeal (r,y) that onsists frresourcesnexchange or olicyy,where E [0,RA k] andy E [0,1].2. If AL offers deal,then L decideswhetherrnot oaccept. f BL accepts,thenBL setspolicytoy,andr resources re transferredrom ationA tonationB andnationA paysa transactionost ofk resourceso implement

thedeal. f no aid deal is accepted,hen L implements's preferredolicyofy= 0.3. Political ompetitionccurs nnations andB as follows: 1) LeadersALandBL allocate heir vailable esources etween rivatez) andpublic oods(g). (2) In each nation, , the eader'sperformancen all other ssues isrevealed.3) Selectors hoosetheir eader.Theincumbents deposed fanyof hercoalitionmembershooses notto support er;otherwise he ncum-bent urvives. electors eceive he ontinuationayoff if a new eader schosen.

Selectorate oliticalCompetitionIf eaderL provides public ndz private oods, hen er upporters'ayoffsrev(g) + u(z) + 0, thats,thevalueof thepublic ndprivate oodsthat he eaderprovidesnd L's performancenall other ssues.Alternatively,'s supportersanabandonher, recipitatingerouster.n this trippedownrepresentationftheselectorateheory,emodel he xpected ayoffssociatedwith challengerom-ing ooffices Q. BuenodeMesquita ndcolleaguesprovide haracterizationsfQ derivedn the ontextfan infinitelyepeated ame.29

28. Milner ndTingley 006.29. Bueno deMesquita t al. 2003.



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LeaderL survivesn office rovided hatv(g) + u(z) + 6 ^ Q. This occurswithprobabilityr(0 > Q - v(g) - u(z)) = 1 - F(Q - v(g) - u(z)). L's pri-mary oal ofpolitical urvival s best achievedbymaximizinghe rewardshegivesher upportersivenher vailableresources:maxgZv{g)+ u(z) subject othebudget onstraintg + zW < R. Thismaximizationmplies hefirst rdercondition:P R ~ P8vg(g)~ - uz{z) = 0,where = 0)

The following efinitionsreatlyimplifyheexposition ftheaid-for-policygame.First et g*,z*) = (g*(R,W),z*(R,W)) be thepolicies hat olveequation(1): these re thepolicies hatmaximizeherewards oa coalition f sizeWgivenR resources. econd, etV(R,W) representhe evelof benefitsrom heseopti-mal rewards:V(R,W) = v(g*(R,W)) + u(z*(R,W)). The comparativetatics fthesepolicyprovisionsnd rewardsredg*(R,W)/dW 0, dz*(R,W)/dW 0,dg*(R,W)/dR 0,dz*(R,W)/dR 0,andVR(R,W) dV(R,W)/dR 0,VW(R,W)< 0, VRW(R,W) 0, andVRR(R,W) 0.Aid-for-olicyDealsSupposeAL offersL r resourcesnexchange or witchingoa more ro-A ol-icyofy. f BL accepts hedeal,then he ncreases er vailableresourcesrom BtoRB+ rbut mposes hecost of -aBy2 onhersupportersandtherest f thecitizensnnation ). Given hat heoptimallyllocatesher esourcesverprivateandpublicgoods,her oalition'swelfare nder he ontingencieshat herejectsor ccepts id arev(g*(RB,WB)) u(z*(RBWB)) V(RB,WB)ndv(g*(RB r,WB))+ u(z*(RB+ r,WB)) aBy2= V(RB+ r,WB) aBy2.Since eaderBL's politicalsurvival s bestenhanced y maximizinger oalition'swelfare, comparisonfthese wopayoffsnablesus tocalculate heminimumevel ofaid,p( y),that Lwould ccept nexchange orypolicy oncessions.nparticular,(y) is the evelof aid (r) that olvesthefollowing quation:

=V(R + r,W)- aBy2- V(R,W)= 0 (2)Thecomparativetatics fequation2) allowus tocharacterizeow nation 'spolitical nstitutionsndresourceevelaffecthe amount faid requiredopur-chaseBL's policy ompliance: p(y)/dy 0, d2p(y)/dy2 0, dp(y)/daB> 0,dp(y)/dWB 0,dp(y)/dRB 0,d2p(y)/dydWB0,d2p(y)/dydRB0. Theamountfaidrequiredopurchase policy oncessionsincreasingn the alience,coalition ize,and resource ase ofnation . Themarginalost ofbuying ddi-tional oncessionss also increasingnthe ize of thepolicy oncession ndB's



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winningoalition ize and resources.Wenowturn othequestion f which id-for-policyeal, fany, eaderAL offers.LevelofAidtoBuyAid-for-policyeals enable eaderAL to deliver oliciesfavored yher oalitionand the itizens f nationA,with he atter ffecteing nexternalityfthedealrather han tsobjective.But,buying policyconcession omesat a price.ALmust ive upresources hatmight therwise ave been used to fund rivatendpublicgoods provisions orhercoalition.n particular,obuytheconcession ,leaderAL must iveupp( v) + k resources. hat s theminimumevelofresourcesrequiredopurchase concessionsp( v)) andfinance he ransactionosts k). IfAL offersuch policydeal then er oalition's ayoffs

V{RA-p(y)-KWA)-aA(\-y)2.SinceAL wants omaximize er urvival,f heproposes naid-for-policyeal(p(v*),y*), she should ropose hepackage hatmaximizes er urvival:v*= argmaxve[al]V(RA p(y) - k,WA) aA(l - v)2 (3)Thisprogrammingroblems globally oncave nd so thefirst rder ondition(7) provides characterizationfany nteriorolution:

J(y)= - -^r- vr(Ra P(y) -KWA)+ 2aA{\ y)= o (4)dyDefiney* as thevalue of v,which olvesJ(y) = 0, equation 4), if suchasolutionxists; therwise*= 0. IfAL requestshis ptimaloncession nd offersthe minimumevel of aid thatBL will accept n return or he concession henAL's coalition'swelfares V(RA- p(y*) - k,WA) aA(l - v*)2. If,alterna-tively, L offers o aid-for-policyeal, thenhercoalition eceives payoff fV(RA,WA) o~A.AL onlyoffers heoptimal id-for-policyeal when hevaluegained rombtaininghepolicy oncession utweighshe oss of theprivatendpublicgoodsthat he eader ouldhaveboughtwith heresourcespent nthe id

deal; condition.L = V(RA p(y*) - KWA) aA(\- v*)2- V(RAWA) a2 (5)Thefollowing ropositionollows irectlyromhese esults.



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Proposition: TheSub amePerfect quilibriumtrategies fthe eaders ntheaid-for-policyameare as follows: fL = V(RA p(y*) - k,WA) 0

then L offershe id-for-policyeal (r,y) = (p(y*), y*);otherwiseL offerso deal. Ifofferedn aid-for-policyeal (r,y),theneaderBL accepts f ndonlyifr>p(y).

TheComparativetatics fAidTransfersAid-for-policyeals mustbe acceptable o each leader Recipienteadersmustpreferat leastweakly) he dditional ewardshey angivetheir oalition atherthan eceiving o aid andmaking o concessions. hedonor eadersmust aluethepolicy oncessions hey btain or heir oalitionmorehighlyhan hedirectrewardshey ouldhaveprovidedheirupportersadthey ot pent esourcesnaid.The structuref thegame givesall thebargainingeverage o nationA sinceit has theproposal-makingower nd so offers heminimalmount f aid thatmakes eaderBL indifferent.nder lternativeargainingtructures,L couldextractmore id forher oncessions. owever,he nherenteaturefall bargainsis thatBL makesher oalition etterff y acceptinghe id-for-policyeal andAL makeshercoalition etter ffby giving p resourcesoobtain oncessions.Political nstitutionsnd resourcesffect hebargainseaders rewilling omake.Weexamine hese omparativetatics.The size of AL's optimal olicy oncession, *, s increasingn the alience fthepolicyfornationA (aA)9A's coalition ize (WA), nd A's resourcesRA)andv* is decreasingn the salienceof thepolicyforB (o~B)9 's coalitionWB)andB's resourcesRB). LeaderAL only eeksaid-for-policyeals if thevalueof thepolicy ought rom exceedsthevalueofthedomestic rivatendpublicgoodsthatAL could otherwiseavebought orher oalitionwith heresourcespent naid. This is more ikely o be the case whenpolicyconcessions an be boughtcheaply. he aid resources eeded o obtain olicy oncessionsresmallerwhenpolicy alience n nation (aB) is low and B's coalition ndresources resmall.Hence, idrecipientsre more ikely o be nondemocraticationswithow levelsofgovernmentevenueshan ichdemocratictates.NationA's resourcesnd institutionslso affect 's willingnesso engage naid-for-policyeals. Such deals are attractivehen oncessionsre valuable highsalience, A) andwhen hemarginalalue ofretainingesourcesor heprovisionofprivatendpublicgoodsis low (largeWAndlargeRA).Wealthy emocraticnations remore ikely o be aid donors han repoorautocratictates.We now turn o how much id, if any, s given.The amount f aid given sincreasingn the alienceofthepolicyfornationA (aA) and the ize ofA'swin-ning oalitionWA) ndresourcesRA).As these ariablesncrease, seeksgreater



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policy oncessions ndso must rovide reaterevelsof aidtoobtainBL's acqui-escence.Variables elatingo therecipient ationhavecompetingffectsn theamount f aidgiven.As salience, oalition izeand resourcesnnation rise henpolicy ompliance rom becomes ncreasinglyxpensive orAL toobtain. hisincreases he mount f aidgivenupto a point.However, s the ostofpurchas-ing policycompliance ises, he donorhas mountingncentives o seek smallerpolicy oncessionsokeepthe ostunder ontrol. he implicationsf these om-peting ffectss best llustratedhroughhefollowing ypotheticalxamples.We start y examininghecase in which hepotential onor's aliencefor hepolicy ssue s smallrelative o its resources ndcoalition ize. Under hese ir-cumstances,id-for-policyeals do not ccur. ven ftherecipienttate s a poor,small-coalitionystemromwhich oncessions an beboughtheaply,he ack ofdonor aliencemeans hat hevalueof the oncessionss insufficiento offset hetransactionostand theopportunityost offorgone rivatendpublicgoods.Weshould xpectno aid wheneither he donor's alienceforpolicycomplianceslow orthepotential onor s a poor, mall-coalitionystem.Now considerhemore nterestingases inwhich hepotentialonor s a highresource,arge-coalitionystemhatvalues thepolicyconcession.n these et-tings,whetherid is givendepends n theprice t which olicy oncessions anbe obtained. uppose hat is a small-coalition,ow-resourceation. his meansthepotential ecipient greesto makepolicyconcessionsn exchange orrela-tively mallamounts f aid. Giventhese ontingencies,he donorbuysclose tothemaximumoncession. rom his tartingoint,onsider hat appens s nationB's coalition r resource ase increases. n ncreasenWB rRBreduces hemar-ginalvalue ofaid resources rom heperspectivef therecipienteader.There-fore, id-for-policyeals becomemore xpensive.AlthoughnitialncreasesnWB rRB ncrease he ost twhich olicy ompli-ancecanbebought, rovidedhat he ost s still elativelyow, hedonor till uyslargeconcessions.However as WBorRB increasefurther,olicyconcessionsbecomes ncreasinglyxpensive. hiseventuallyeads thedonor eaderto seeksmaller,esscostly oncessions. s WB ndRBbecome ncreasinglyarge so thatthe rice fobtainingolicy oncessions ecomes ver arger),his ubstitutionffectbecomesncreasinglyrominentnd o reduces he ositiveelation etweenWB, B,andthe evelof aid.EventuallyWB ndRBbecome ufficientlyarge hat id-for-policy ealsaretooexpensivendno aid sgiven t all. nsum, he verall evelofaiddonationsepends ntheoint ffect f howmany oncessions reboughtndthe ost f achconcession. his eadsto a nonmonotonicelationshipith he otalamountf id nitiallyncreasingnthe ecipient'sesourcesnd oalition ize beforedecliningsdonors eekfewerof hencreasinglyostly) oncessions.nthe mpir-ical section, emodel his redictedonmonotonicelationshipetween ecipientresourcesndcoalition izeand aid received sing quadratic elationship.We llustratehe ogicofthe rgumentyconsideringhe ailure fU.S. attemptstobuypolicy oncessions rom urkey.nthe un-upo the2003invasion f raq,theUnited tates ought ermissiono base U.S. troopsn thepredominatelyus-



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limnationfTurkey.uchbasing ights ere fvaluefor heUnited tates ecausea second,northernront ouldhave mprovedtsability oengage he raqiarmyon favorableerms. lthoughurkeys alliedwith heUnited tates hroughheNorth tlantic reaty rganizationNATO),the deaofassisting predominatelyChristian ation o invadea fellowMuslimnationwas domestically npopular.DuringnegotiationsnFebruary003,theUnited tates fferedurkey6 billioningrantsndupto$20 billion n loanguarantees. ivenTurkey's opulationfapproximately0 million, hese id totals mountedo approximately370 percapita.30he Turkishovernmentsrelativelyemocratic.nPolity's 10to+ 10democracy-autocracycale t cored in 2003 31 urkey asalsorelativelyealthywith gross omestic roductGDP) of$240billion.32heTurkisheaders eededtocompensate substantialroportionfa relatively ealthy opulationhroughincreased olicyrewards. lthoughhemagnitudeftheU.S. offerwouldhaveallowed heTurkisheaders odirectmore han thousand ollars owardachoftheirupporters,hatwas not nough ocompensatehem or he ought-afteron-cession. n the end theUnited tatesobtained much maller oncession, nlybeing llowed o coordinateescuemissions or owned ilots ndthe ikeoutofNATObases inTurkey.As a thoughtxperiment,upposeTurkey adbeena corruptlectoralystemand so ratherhanneeding, or xample, he upportfhalf f theregisteredlec-toratethats,about 0 million f 40 million egisteredoters),ts eadersneededonlythesupport f 1 percent f theselectoratethat s, 400,000outof 40 mil-lion),a percentageonsiderablyarger han he size ofthewinningoalitionn,for xample,NorthKorea.33While under emocraticule, he U.S. offerwouldallowa Turkisheader o direct n additional1,300to eachof hisessential up-porters,nder he mall-coalitionettinghe eader ouldprovide achsupporterwith 65,000, n amountmore ikely o elicit upportor hegovernmentven fit hadallowed U.S. invasion f raq throughurkey. nder uch ninstitutionalsetting,t is farmore ikely hat heUnited tates ouldhaveacquiredTurkishacquiescence,nd at a much owerprice.DataThetheory redictshat he izeofaid-for-policyealsandwhetherny uchdealsoccurdepend n the alience f thepolicy, he evelofresources,ndthepolitical

30. JaneArraf ndJohnKing."TurkeyHolds out forExtraU.S. Aid over raq,"CNN.com,18February 003. Available at (http://www.cnn.com/2003/WORLD/meast/02/18/sprj.irq.erdogan/index.html).ccessed14January009.31. Marshall, aggers,nd Gurr 006.32. Current .S. dollars. ee World ank2005.33. Authornterviews ithKenGause,Dae-SookSuh, ndother orth orea pecialists,-2March2004.



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institutionsnprospectiveonor ndrecipient ations.We test hesepredictionsusingbilateralOECD data for ssentiallyll countries uring heyears1960-2001.34 he data areorganized y country-pairearswhere he ountriesre theprospectiveecipientB) andtheprospectiveonorA); thats,each oftheOECDmembers). ecausethere s a division fopinion nthe iteratureboutwhethercountriesther han he United tatesgive aid primarilyor ltruisticurposeswhile heUnited tates s said togiveaid for trategiceasons,we test he heoryfor ll OECD countriesnd also for ll OECD countrieswhileseparating .S.choiceswith dummy ariable, s, coded1 for hoseobservationsn which heprospectiveonor s theUnited tates, nd coded 0 otherwise.We also constructinteractionerms,s explained elow, ocapturenydifferencesnhowtheUnitedStatesfits hetheoryralternativexplanationsompared o otherOECD mem-ber states.Ourempiricalnvestigationocuses irstn how much idrecipients et, ftheygetany.Anyprospectiveonormustmake this alculation irst efore ecidingwhetherogiveaid ornot, s that eterminationepends n howexpensive hedesired olicy oncessions reexpected o be. Then,having eterminedhecost,we assess the ikelihood hat prospectiveecipienteceivesforeignssistancefrom prospectiveonor.We measure he size of bilateral id donationss thelogarithmf totalgross conomic id in constant .S. dollars.35hisdependentvariable s called In aid). Whenwe turn o answeringhequestion, Whogetsaid?,"thedependentariable, etaid, is a dummyoded as 1 for ach bilateralprospectiveonor-recipientair hat esultedn aidbeing ivenn theyear nques-tion ndcodedas 0 otherwise.Coalition izes,WA ndWB, reestimated singBuenode Mesquita ndcol-leagues'five-point easure fwinningoalition ize.36Wis normalizedovarybetween and 1,with1 representinghe mostdemocraticountries nd 0 themost utocratic.heestimatefwinningoalition ize relies nthePolity ata37componentsegtype (regime ype),xrcomp thecompetitivenessf executiverecruitment),ropen the penness f executive ecruitment),nd parcompcom-petitivenessfparticipation).nepoints added othe ndex fW for ach of thefollowingonditions:f theregtype s nonmilitary,f xrcomp s greaterhan requal to 2 (meaning hechief xecutives not chosenbyheredityr in rigged,unopposedlections),f xropen s greaterhan , and fparcomp quals5 (indi-cating hepresence f a competitiveartyystem).t is unfortunatelyifficultotest hepredictions ith espectothedonor's oalition izebecause, s predictedbythe heory,irtuallyll thedonornationsrecodedas having he argestoali-tion ize,WA 1.

34. OECD 2003a and 2003b.35. U.S. Departmentf Commerce 003.36. BuenodeMesquita t al. 2003.37. Marshall, aggers,nd Gurr 006.



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In the heory,hevariables BandRAreflecthemagnitudef resourcesvail-able to the eaders feachgovernment.e measure his oncept s the ogarithmofgovernmentpending, hichwe constructsingPennWorldTablesdata38 sthe ogarithmf theproduct f population, er capitaGDP (rgdpch), nd thegovernment'shareof GDP (kg). To reflecthenonmonotonicitynticipatednthe ffectfRBbythe heory, e also include squared ersion f themeasurenourspecifications.Whilethe ogarithmfgovernmentpending irectlymeasures hetheoreticalterm B, t s a problematic easure. wo ofRB'scomponents,ercapita ncomeandpopulation, elong n the econometricpecificationn their wnright: ercapita ncome s a control orpovertyndhumanitarianeedand,as we shallexplainbelow, opulations a measure fsalience aa). Thiscloudsthe nterpre-tation fRB.Therefore,s an alternative e also include hecomponentsftheRBvariableandtheir uadraticounterparts)nseparatepecifications.npartic-ular nModels2, 4, 6, and 8 we replace heRBtermswith he ogarithmfpercapita ncome wealthb), the ogarithmfpopulation/(populationb)), andthegovernment'share fGDP (gov.share).We measure alienciesusing varietyf variables. or ease ofdiscourse,weshallassign ach of thesevariables s a determinantfeither hedonor's r therecipient'salience.However,werecognizehat heres considerableverlap ndconcessions hat rehighly alient or he donor re also likely o be salient ortherecipient,ndvice versa.Recipientalience s measuredwith dummy ari-able,cold war, coded as 1duringheyears ptoand ncluding989and 0 after.Webelieve hat akingid from ECD membersalliesof theUnited tates)wasa costly ignalduringhecold warregarding hich idetherecipienthose.Assuch, he ecipient'salience or akingid from heUnited tates r another ECDmember uringheColdWarwas expected o be elevated,meaninghat id wasless likely obe given, ut fgiven, t wouldbe a greatermounthan fterheCold War.Unfortunatelye do nothavedata on Sovietaid giving o we cannotcontrol or heextent o whichSovietaid served s a substituteor he UnitedStates rother ECD-member ssistance.Forprospectiveonors,he alience f thepolicy oncessionought rom L ismeasuredwith hree ndicators: istance, population, and colony, distanceis estimated s the ogarithmf thedistancen miles between achprospectiverecipient'snd eachprospective ECD donor's apital ity, opulation is mea-sured s the ogarithmf theprospective ecipientountry's opulationn mil-lions as reportedyPennWorld ables, olony is a dummy ariable oded as 1if thepotential ecipientountryad been a colony ftheprospectiveonor. hegeneraldea is that olicy oncessions rom eographicallyloser,more opulouscountriesre valuedmore han omparableoncessions rom malldistantoun-

38. Heston, ummers,ndAten 002.



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tries. imilarly,ormeroloniesholdhigheralience or onors han o stateswithwhich hey ad no specialprior elationship.In addition o factorsikely o nfluenceid-for-policyeals,weneed toassessaid donations ivenforhumanitarianeasons s an alternative otivationor id.To the extenthat id is givenforhumanitarianurposes, ations n mostneedshouldbe most ikely o receive id and toreceive ubstantialmounts.We usetwomeasures fhumanitarianeed: he ogarithmfper apita ncomewealthb)and ife expectancy (atbirth,romheWorld ank's WorldDevelopmentndi-cators). here re imitationso bothmeasures. nfortunately,ercapita ncomeis an importantomponentfB's resourcemeasure hatmakes thard odisen-tangle hehumanitarianeed from hepolicy oncessionmotivation.incethosepeople trappednpoverty ithoutccess to education ndhealthcareend odieyoung,ifeexpectancyerves s a proxy orneed. Ourchoice of thismeasurereflectsrade-offsetween variable hat eflectsumanitarianeeds nddata vail-ability.Whiledirectmeasures fpoverty,uch s theproportionf thepopulationliving n less than dollarper day,might etter aptureneed,suchdata havelimitedvailability.39We estimatehe ffectsf tradewith he ogarithmfthevalue oftrademportsandexports etweenachdyad onsistingfprospectiveecipient andprospec-tive donorA. Thesedata, abeledtrade, aretaken romGleditsch.40ikewise,in someanalyseswe also control or he national ecurityelationshipetweeneachpair,A andB, based on Bueno de Mesquita'smethod festimatingharedsecurity olicy nterests.41e devised method o estimate he imilarityfA'sandB's patternfmilitarylliance ommitmentsith ll othertatesntheworldeach year.This has been shown n numerous tudies o be stronglyssociatedwithhowreliable lliancecommitmentsrove o be.42We refer o thisvariableas alignment. It can varybetween 1 and +1 and, n ourdata set,actuallyvariesbetween 0.35 and +1. In themodels hat nclude lignment,we alsoinclude lignment squared.The assumptionsehind his are that here s noreason obuypolicy oncessions rom lose friends nd that t is tooexpensiveto purchase oncessions rom itternemies.Countrieswhosealignmentcorewith heprospective onor re in theneutral ange around value of 0) aremost usceptibleomaking ecurity-basedid forpolicydeals.The alignmentdata,basedon Kendall's auB, re drawn rom UGene.43n several f themod-

39. Some studies,uchas Dollar and Collier2002, infer overtyevelsfrom er capita ncome.Unfortunately,incewealth s alreadyncluded n ourspecification,hisprovides o additionalnfor-mation.While ife xpectancyata s availablefor number fnationsvery ear, or hemajorityfnationst is onlyreportedn the WorldBankss WorldDevelopmentndicatorsvery wo or threeyears.Weonlyuse datafor hoseyearswhere ife xpectancyata s widely vailable.40. Gleditsch002.41. BuenodeMesquita1975.42. See,for xample,Kim1989;Bennett ndRupert 003; and Oneal and Russet1999.43. Bennettnd Stam2003.



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els, we control orthe evel of multilateralid (/(multilateral aid)), mea-sured s the ogarithmf thetotal mount fmultilateralid in constantollarsusingdata from heOECD.44WB ndRB (andtheir omponentmeasures),ife expectancy, tradewithB,andalignment ithB are each laggedby 1 yearto capture he nformation'sgovernmentouldhave had at thetime t decidedwhetherogiveaid and fso,howmuch ogiveto B. Eliminatinghe agdoesnot hange heresults.Whenwedistinguishatternsor heUnited tates rom herest f theOECD members, einclude nteractionerms orthe UnitedStatesand WB,RB, RA that s, U.S.resources), istance, population, cold war, life expectancy, trade, andALIGNMENT.Thetheory,onsistent ith he mpiricaliterature,uggestsidgivings a two-stepprocess.45able1usesregressionnalysis oexamine owmuch id s given,conditionalpon ny idbeinggiven. able2 usesa logitmodel oassesswhetheranyaid was given.Unfortunately,hedependence etweenhowmuch s givenand whetherny s givenat all introduces ias intoestimates. hese statisticaldifficultiesreate nferenceroblemsorboth urtheoryndexistingtudies. oassess where ias is likely o be introduced,n theAppendixwederive he ikeli-hood mplied ythe heory.his shows hatwhile ogitprovides reliable ssess-ment f whetheridis given, autionsrequired ith espectothe mountfaidgiven, s leastsquaresestimatesre biased.Unfortunately,hisbias is hardtocorrect,s we discuss ntheAppendix.Theregression odelusesfixed ffects or achrecipientation.Weprovidereplicationrchivewith ll thedata andcode used.46 his archive lso provideswiderange f alternativepecificationndrobustnessests,ncludingonor ixedeffects,yadfixed ffects,imple rdinaryeastsquares OLS), the nclusion fnumerousombinationsfcontrolariables,ndthe nclusionrexclusionf sraelandEgypt.Model 1 provides barebones ssessment fthe heory,ncludingmeasures finstitutions,esources ndsaliencefordonors ndrecipients,nd a dummy ari-ablefor heUnited tates.Thesquare f therecipient'sesourcess also includedbecause thetheory uggests nonmonotonicelationshipetween he mount faidandrecipientesources. s discussed bove, omponentsftheresourcemea-sureRBdeservendividualnclusionn the pecification.ohelpdisentangleheseeffects,he omponentsfRBaredisaggregatedn Models2 and4. Model 3 reas-sessesModel 1 in thepresence fcontrols or ifeexpectancyt birth s a mea-sureofhumanitarianeed, rade,multilateralid,andsecuritylignment. iventhedebate s to whetherheUnited tates smore r ess likely o use aid strate-gically,Model4 includesnteractionsetween hevariables n Model 3 and a us

44. See OECD 2008.45. CingranellindPasquarello 985.46. Available t.ccessed 14January009.



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dummyariable o assess whetherheUnited tates itshe heoryifferentlyromother ECD nations. able 2 uses similarpecificationsodeterminehethernyaid is given.

ResultsTable 1 tests hehypothesesegardingow much id is given conditionalponsome idbeing iven). he results rebroadlyonsistent ith he heoreticalxpec-tations.n eachofthefourmodels,more id flows o arger-coalitionegimes. sgovernmentevenuesncreasenrecipient egimes,o too doesthe mount faidreceived. s anticipatedn themodel, his s true ptoa turningoint fter hichthepresumedxpense fpolicy oncessions eads donors ndrecipientsoagreeon more imitedrrangementsnd,as we show ater, lowerprobabilityfanyaidbeinggiven.Salience lso hasthe xpectedffects. enerally,ountrieseographicallyloserto thedonor eceivemore, s do formerolonies nd countries ith arger opu-lations.The effect f the Cold War on the evel of aid variesaccording o themodel pecification.Donorresourcesnd nstitutionsffecthe evelofaid. As expected,ich onorsgivemore id thanpoordonors, s witnessed ythehighly ignificantositivecoefficientn theRAvariable. onorwinningoalition ize,WA,s also predictedto nfluencehe mountfaidgiven.However,he ignificantegativeoefficientestimatesorWAeemopposite o ourexpectations. hile nitially isconcerting,this s theconsequence f a selection ffect redicted ythetheory.n thevastmajorityfobservations,inningoalition ize for hedonor ation akes tsmax-imum alue WA 1). Indeed, his s an mplicationfthe heory.heonly xcep-tions rea numberfyears or pain,Greece, ndPortugal, uringwhich painand Greecegaveno economic id andPortugal nlygaveaid to sixformerolo-nies.47Whenwe include control ormultilateralid,which s availablefrom1975onward,we cannot stimatehe mpact f WA,ince n this imeframelldonors avemaximal oalition ize. Given his ackof varianceas anticipatedytheformalmodel), heappropriatenterpretationfWAs a fixed ffect ummyfor ortugueseoloniesbefore 968.

47. Portugal ascoalition ize WA .5 between 960 and 1973. n 1974and 1975, ts coalition sWA .25,andfrom 976onwardsts coalitionwas maximal ize, WA 1. Greek oalition ize isWA .75prioro 1967.Following coup n 1968, oalition ize is WA 0 until 973 andWA .25 in1974.WA 1 after 974.Spainhas coalition izeWA .25 until 977, henWA .75 until 981, fterwhich imeWA 1. Nondemocraticortugal ave aid toCape Verde, ao TomePrinciple, uineaBissau,Angola, ndMozambiquebetween 961 and 1967.These nationswereall formerolonies.Portugal lso gave aid to India n 1960and 1961,which, lthough ot a formerortuguese olony,includesGoa, whichwas a formerolony.Prior o attaininghe maximalvalue forcoalition ize,Greece ndSpaingavenoforeignid.



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TABLE . Determinantsfthe mount faid givenModel1 Model2 Model3 Model4Dependent ariable /(grossaid) /(grossaid) /(grossaid) /(grossaid)

donor coalition: Wa -7.985 -8.243(0.753)** (0.749)**donor resources: Ra 0.800 0.803 0.392 0.353(0.009)** (0.009)** (0.022)** (0.022)**lagged WB -0.142 -0.26 -0.843 -0.896(0.160) (0.159) (0.310)** (0.312)**laggedWB2 0.398 0.599 1.092 1.181(0.180)* (0.179)** (0.347)** (0.349)**laggedRB 0.84 0.995(0.089)** (0.214)**laggedRB2 -0.057 -0.079(0.005)** (0.013)**LAGGEDWEALTHb 4.247 3.901(0.429)** (0.921)**LAGGEDWEALTHB2 -0.305 -0.325(0.027)** (0.059)**/(population) 1.23 1.526 0.936 0.829(0.077)** (0.088)** (0.192)** (0.239)**/(population)2 -0.077 -0.084(0.014)** (0.035)*gov.shareb 1.748 1.415(0.274)** (0.518)**gov.shareb2 -0.553 -0.786(0.241)* (0.429)LAGGED LIFE EXPECTANCY -0.005 0.000(0.007) (0.007)/(distance) -0.825 -0.827 0.228 0.314(0.022)** (0.022)** (0.055)** (0.058)**coldwar -0.092 -0.202 0.109 -0.116(0.031)** (0.031)** (0.064) (0.067)colony 2.619 2.609 1.512 1.436(0.043)** (0.043)** (0.082)** (0.082)**LAGGED TRADE 0.573 0.64(0.021)** (0.022)**LAGGED ALIGNMENT 0.395 0.724(0.277) (0.324)*LAGGEDALIGNMENT2 -0.288 -0.673(0.417) (0.451)/(multilateral aid) 0.039 -0.014(0.019)* (0.020)us 0.714 0.696 0.128 19.683(0.045)** (0.045)** (0.084) (12.554)us * RA -0.59

(0.802)US * LAGGEDWB -0.102(0.750)US * LAGGEDWB2 -0.103(0.796)(continued)



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TABLE 1. ContinuedModel1 Model2 Model 3 Model 4Dependent ariable /(grossaid) /(grossaid) /(grossaid) /(grossaid)

US * LAGGEDWEALTHB - 1.081(1.518)US * LAGGEDWEALTHB2 0.098(0.098)us * /population) 0.441(0.111)**us * /(populations)2 -0.047(0.016)**us * gov.shareb -0.153(2.200)US * GOV.SHAREB2 2.098(3.556)US * LAGGEDLIFE EXPECTANCY 0.043(0.012)**us * In distance) - 1 299(0.200)**US * COLDWAR 0.684(0.224)**

US * COLONY -0.034(0.609)US * LAGGEDTRADE -0.398(0.072)**US * LAGGEDALIGNMENT -1.467(0.683)*US * LAGGEDALIGNMENT2 -0.202(1.222)us * Inmultilateral aid) 0.133(0.071)Constant 1.148 -10.469 -11.676 -19.412(0.822) (1.850)** (1.114)** (3.638)**Turningoint nRb 7.35 6.2930thpercentile 10th ercentileTurningoint nwealthb 6.96 5.99($1,050) ($500)20thpercentile 1stpercentileTurningoint nalignment,auB .69 .53Observations 39919 39919 11520 11520NumberfrCCODE 122 122 108 108R-squared 0.37 0.38 0.38 0.4

Notes:tandardrrorsnparentheses,significantt5%;**significantt 1% two-tailedests).

Recipientoalition izeinfluenceshe mountf aidreceived. he argestoali-tion ystems eceive hegreatestmount faid,conditional pon receivingnyaid.Theanalysis ncludes oth inear ndquadratic erms orWB nd ndicatesU-shaped elationshipetween oalition ize and the amount faid given.Careshould e takenn nterpretinghe mpact fthese wovariables ince hevariable



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WBs an ordinal ndexratherhan cardinal ariablewith omenaturalnterpre-tation.nModels 1 and2, the urningoint s between and 0.25 indicatinghatthe wo mallest izes of coalition eceive he east mount faid.Models3 and4suggest oalitions f size between .25 and 0.5 receive he eastaid. Model 4,which ncludes nteractionsetweenhedummys variablendeachofthe egres-sors, howsthat heUnited tatesresponds o coalition ize no differentlyhanother onors.n eachcase,the argestoalition ystemseceive hemost id.Model 1 indicates a nonmonotonic elationshipbetween the recipientgovernment'sesourcesndthe mount faidgiven.nitially,ncreasesn resourceslead togreaterevels of aid beinggiven;however eyond certain oint, roundthe30thpercentilenterms frecipientesources,dditional ecipientesourcesleadto a decrease nadditionalid. Governmentesources epend npopulationsize,per capita ncome, nd thegovernmenthare f GDP. Sincethesefirstwofactorsegitimatelyelong n themodel n their wnrights measures fdonorsalience ndneed,Model 2 attemptsounpack heir eparatempact.Model 2 includes uadratic erms orpercapita ncome, opulationize,andgovernmenthareofGDP fortherecipient ation.The estimatesndicate hat,across he ntire ange f the ample, he mountf aidgiven s increasingn thesize of a recipient's opulationnd ncreasingnthegovernment'share fGDP,althoughn both ases at a diminishingate.Recipientwealth,measured s thelogarithmfper capita ncome, as an interestingffect n the mount f aid. Ifaid wereprovided urely n a needsbasis,wemight xpect hemost id togo tothepoorest ation. his s not he ase. The amountfaidgivenncreasess recip-ientwealth ncreases p to approximatelyhe 20thpercentilecirca$1,000percapita ncome) nterms frecipient ealth.Beyond hispoint, reaterecipientwealth eads to a decline nthe mount f aid given.Addinghigher-ordererms,suchas cubics,does notdiminishhisnonmonotonicity.onsistent ith hepre-dictions f the heory,id is initiallyncreasing ith ecipientesources ndthendeclining. nfortunately,t remains ard o separate heeffectsf humanitarianneedfrom id-for-policyeals since t s fairly oornations hat eceive nd areexpected o receive hemost id based on either xplanation. ne might rguethat he humanitarianase implies hat hewealth oefficienthouldbe strictlynegativeo that he bsolutelyoorest eceive hemost id,ratherhannonmono-tonic. f that iew s accepted, hen hewealth oefficients inconsistentith hehumanitarianypothesis.Model3 providesn alternative easure fhumanitarianeed, ife xpectancy,as well as control ariables or onor-recipientrade ndsecuritylignments.hesmall nd nsignificantoefficientstimatesor ife xpectancyuggestshat uman-itarian eed has at bestonly verymodestmpact nthe mount faidgiven.Aten-yearmprovementn lifeexpectancyaboutone standard eviation) educestheamount f aid by less than2 percent f a standard eviation.n Model 4,which eparateshe ffectsor heUnited tates, ife xpectancyppears o haveno impact n aid amounts or therOECD donor. urthermore,hismodel ug-gests hat heUnited tatesgivesmore id to thosenationswith igherife xpec-



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largeresources remost ikely ogive foreignid.Table2, which ontainsogitanalyses f whethernyaid is given, upportshesepredictions.he results rerobust cross the modelsevenif we deleteEgypt nd Israel,theaid recipientsmost ransparentlyeceivingid inexchange or policy greement, ostnotablytheCampDavidpeace agreement.The results re broadly upported crossModels 5 through . Rich, arge-coalitionnations re most ikely ogiveaid. The coefficientsn donor oalitionsize and donor esourcesrepositive ndhighlyignificantalthoughecauseofdataavailabilityhe mpact f coalition ize canonlybe estimatedn the bsenceofcontrols ormultilateralid).Donors re lsolikely ogive idwhen he alienceof thepolicy s high. n this egard, onors remore ikely ogiveto argepopu-lationformer olonies.Althoughwe saw earliern Models 1 and2 thatdonorstend o givemore id to nations hat regeographicallylose to them, heesti-mates n Table2 suggest istance as ambiguousffectsn thedecision ogiveaid.Althoughhetheory redictedhat ncreasing ecipientoalition ize wouldreduce he ikelihood freceivingid,the stimatesuggest oalition ize haslit-tle mpact n the ikelihood freceivingid.Only n Model 5 are the oefficientestimatesignificant,lthoughvenhere, jointhypothesisest f the umof thecoefficientstimates n the inear ndsquared oalition ariabless insignificant.Models 5 and 7 assess the ikelihoodhatnation receives id in terms f thegovernmentesource ariableRB.The marginalffect fgovernmentesourceson theprobabilityfreceivingid is nonmonotonic.or nationswithvery owgovernmentesources,heprobabilityfreceiving id is increasingn govern-ment esources. owever, eyond certain oint, round he 30thpercentilenterms f resourcesnModel5, increasingesourceseduces he ikelihoodf aid.InModel7, this urningoint s at the1stpercentilen terms fresources,ndi-cating hat, crossthewhole ample, s resourcesncrease, overnmentsre esslikely oreceive id.Model 6 unpackshe omponentsfgovernmentesources.opulation as com-petingffects. largepopulationmakes herecipient's olicies alient o a poten-tialdonor.However, large populations also indicative f largegovernmentresources hatmake t expensive or he donor o obtain oncessions. he esti-mates nModel6 suggest hat arger ations remore ikely ogetaid,althoughthemarginal ffect f an increase n population ecreases as population izeincreases.Governments ith arge hares ftheeconomy re more ikely oberecipientsfforeignid. Wealth educes he ikelihood freceivingid.Consistent ith xpectations,s a government'sesources nd wealthncrease,itbecomes ess likely o receive oreignid.Unfortunately,his vidence ails odistinguishetween trategicndneeds-basedheories,ince n both rgumentsincreasing ealthhould iminishhe ikelihood f id. Model7 includesife xpec-tancy s a measure fhumanitarianeed.Just s thismeasure ad ittlempact nthe mount faidgiven, talso hasrelativelyittle nfluencen the ikelihood faidbeinggiven. f a nation hat ad a 50percenthance freceivingidimproved



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TABLE . Whogives id to whom?Model5 Model Model 7 Model8Dependent ariable getaid: y/n getaid: y/n getaid: y/n getaid: y/n10.615donor coalition: Wa (4.409)*donor resources: Ra 0.663 0.711 0.468 0.390(0.088)** (0.107)** (0.115)** (0.119)**lagged WB -1.22 0.100 -0.146 -0.182(0.333)** (0.183) (0.238) (.265)lagged WB2 1.307 0.504 0.323 0.462(0.292)** (0.350) (0.228) (.242)lagged RB 0.559 0.119(0.151)** (0.116)lagged/?/ -0.04 -0.033(0.008)** (0.007)**LAGGEDWEALTHb 0.833 1.881(0.375)* (0.530)**LAGGEDWEALTHB2 -0.067 -0.182(0.027)* (0.038)**/(population) 0.391 0.314 0.337 -0.33(0.066)** (0.052)** (0.114)** (0.132)/(population)2 -0.016 -0.033(0.011) (0.010)**gov.shareb 0.298 0.410(0.311) (0.302)gov.shareb2 -0.396 -0.689(0.275) (0.295)**LAGGEDLIFE EXPECTANCY -0.016 0.008(0.005)** (0.006)/(distance) -0.283 -0.120 0.481 0.601(0.168) (0.256) (0.210)* (0.215)**coldwar -1.089 -0.687 -0.752 -0.746(0.228)** (0.216)** (0.244)** (0.263)**

colony 1.376 1.358 0.386 0.058(0.328)** (0.570)* (0.582) (0.641)LAGGEDTRADE 0.474 0.656(0.151)** (0.162)**LAGGEDALIGNMENT 0.306 1.511(1.525) (2.016)LAGGEDALIGNMENT2 -0.150 - 0.940(2.220) (2.666)/(multilateral aid) 0.169 0.209 0.143(0.031)** (0.027)** (0.027)**us -0.921 -1.478 -1.709 -66.116(0.347)** (0.525)** (0.548)** (2.639)**us * RA 5.591(0.119)**US * LAGGEDWB 0.152(.264)US * LAGGEDWB2 0.450(.242)(continued)



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TABLE2. ContinuedModel5 Model Model7 Model8Dependent ariable getaid: y/n getaid: y/n getaid: y/n getaid: y/n

US * LAGGEDWEALTHB -1.264(.530)*US * LAGGEDWEALTHB2 0.056(.038)us * /h(populationb) 0.075(.132)us * /(populations)2 -0.085(0.010)**us * gov.shareb 1-821(.302)**US * GOV.SHAREB2 ~6.496(.295)**US * LAGGEDLIFE EXPECTANCY -0.004(0.005)*us * In distance) -0.643(.215)**US * COLDWAR 1.708(0.263)**

US * LAGGEDTRADE -0.367(0.162)*US * LAGGED ALIGNMENT 0.355(2.016)US * LAGGED ALIGNMENT2 -1.679(2.665)us * /(multilateral aid) 0.567(0.027)**Constant -16.229 -8.759 -7.673 -13.254(4.550)** (3.086)** (1.740)** (2.639)**Turning oint nRB 6.96 1.8030thpercentile 1 tpercentileTurningoint nwealthb 6.254 5.185thpercentile 3thpercentileTurningoint nalignment,auB 1 .8Observations 78351 48775 17341 17331

Notes: tandardrrorsnparentheses,significantt5%;**significantt1% two-tailedests).its ife xpectancyytenyears,henhiswould nly educe ts ikelihood freceiv-ing idby3 percent.ndeed nModel8,which eparateshe ffects ftheUnitedStates, hecoefficientstimatesuggestshatOECD membersre more ikely ogivetonationswithhigher ather han ower ifeexpectancies;hat s,with essneedrather hanmoreneed, lthoughheeffects notsignificant.n thismodel,the ikelihood f the UnitedStatesof giving id is reduced f lifeexpectancyimproves. owever he ffects extremelymall,with ten-yearmprovementnlife xpectancy educinghe ikelihood f aidbyonly1percent. nlessper apitaincome s thesole meansbywhichdonorsudgeneed,theseresults re hard orectify ith humanitarianasisfor id.



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Models7 and 8 include ontrolsor rade ndsecurityelations. onor remostlikely ogiveaid to thosenationswithwhom hey rade nd their llies. Model8assesseswhetherhe United tatesfits hetheory ifferentlyrom therOECDnations. lthoughmany fthecoefficientstimates n theU.S. interactionari-ablesaresignificant,ubstantivelyhepatternfU.S. aidis similar oother ECDmembers.Table 2, in conjunction ithTable 1,helpssortout the extent o which idgivings needsbased.Those nationswith ow ife xpectanciesreno more ikelyto receive id from ECD membershan re nationswith igherife xpectanciesandthedifferencen the ikelihoodhat heywill receive id is minimal.Overall, he heoryeemsto fit hedata well. While nModel5, 51 percentfprospectiveecipient-yearsesultn a countryeceivingid,the heoryorts hemoutsufficientlyell thattcorrectlyategorizes 3 percentfcases,resultingncloseto a 50 percent roportionateeductionnerror. ach ofthe ogit nalysesyields signal-to-noiseatio fgreaterhan 1 percent,ndicatinghat s the sti-mated robabilityfgettingidincreases o too doesthe etofcases that ctuallyreceived id.

ConclusionCurrentebate bout oreignid revolvesroundhreeuestions:s too ittle ivento make difference?s an increasenaiddonations mistake nlessdonors irstinstitute eans opreventorruptiony recipienteaders?Do donors iveassis-tanceforhumanitarianeasons r fordomestic ains?Weproposed nd testedformalmodel hat elps lluminatenswers o these uestions. y positinghat,nadditiono humanitarianoncerns,ecipientnd donor eaders re each motivatedto maximize heir olitical urvival rospects, e derived redictionsboutopti-mal aid decisionswithregard o giving ndgettingid and withregard o theamounts iven nd taken.Thepatternfbilateral ECD aid donations etween1960and 2001 is broadly onsistent ith he heory'sredictions.Theresultsndicate hat he amount faid given nd to whom t is given reboth onsistent ith hedecisions xpected rom olitical eaderswhoaremoti-vated o enhanceheir oliticalurvival. s such, t eastpart f aidgiving ppearstobe driveny nstitutionallynduced onsiderationsnrecipientnddonor ations.Thus, he nswer o thefirstuestion osedabove s that herightmount faidis givenfor hepurposes hatmotivate onors ndrecipients,ven f this s sub-optimal romheperspectivefalleviatingoverty.The secondquestion ocuses ttentionn the orruptsesto which idmoneyis often ut.Thetheory uggestshat hese orruptsesbysmall-coalition,uto-craticeaders, reanessential,fnotnecessarilyonscious, art fthedecision ydonors ogiveaid,as wellas being n themore bvious nterestfcorrupteadersinreceivingid. Large-coalitiononors epend n effectiveolicy mplementa-tionfor heir olitical urvival. heyfind t easier opurchase olicy oncessions



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from mall-coalitioneaderswhorely ncronyismndcorruptions those eaderscan best afford o sacrifice heir wnsociety's ublic-goods-orientedoliciestostay npower.Humanitarianeed, s indicated y ife xpectancy,oesnot eemtomotivatethedecision ogiveaidbyeitherheUnited tates r other ECD members. ei-ther oes itsubstantiallyffect he mount faidgiven.Donorsgiveaidto arge,geographicallyroximatetates, specially hosewithwhom heymaintainraderelationsrwhosesecuritylignments aybe upforgrabs.The neediest o notreceive hemost;rather,hosewhosepolicycompliance anbe purchasedt anaffordablerice pparentlyreofferedid andagree o take t.Selectorateheoryuggests hat id transfersmprovehesurvival fpoliticalleaders n bothdonor ndrecipienttates.f itdidnot, hen hese eaderswouldnotparticipaten such deals.Aid also improveshewelfare fcitizensn donorstates ecause tpurchaseshepolicy oncessions hey esire.Paradoxically,helosersfrom id are theaverage itizens n recipienttates:preciselyhepeoplewho are thenominal eneficiaries.heyareharmedn twoways.First, hey etpoliciestheywouldrather ot have. Forinstance,incetheCampDavid peaceagreement,heUnited tatespays Egypt orecognizesraeland maintain eacewith t.Thesepolicies renot specially opular mong rdinarygyptians.t isworth otinghat heEgyptian overnmentasdone ittlen thewayof educationto make hispolicymorepalatable.Doingso wouldreduce he mount faid thegovernmentould xtractnthe uture econd, he idhelps heir utocraticncum-bent eadershipurvive nd continue opursueunpopular olicies n the future.Thus, itizens n therecipienttateget"badpolicies" nd"bad leaders." ndeed,anotherelectorate odel nd a largebodyofevidencendicates hat oreignid,justlike oil or other ontributorso theresource urse, lso decreases he ikeli-hood of a regime ecomingmoredemocraticnd increases he risk hat t willbecome ess so.49With heseconsequencesn mind, t is littlewonder hat heUnited tates, s theworld's argestndmostnearly biquitous onor,s the ar-getofso much nmity.50etprecisely ecausetheU.S. governmentursues ol-icies to enrich tspeople, t is also a populardestinationor hosefleeingheirown state.Selectorateheoryhallenges he fundamentalssumptionhatmotivates ur-rent ebate egardingoreignid;namely,hat id is intendedoalleviate overtyandpromote evelopmentatherhanbeingan equilibriumxchange fmoneyforpolicy compliance. electorateheorymight otbe theonlyexplanationoaccountfor hefindingsn this rticle.However, he attractionfembeddingtheoryf aid transfersnthe electoratemodel s that he selectoraterameworkaccounts or widerange f other olitical,conomic,ndsocialphenomena.orinstance, xtensions f the selectorateheoryxamine ndogenousnstitutional

49. See Bueno deMesquita nd Smith 009; and Smith 008.50. See Chiozza2007; and Katzensteinnd Keohane2007.



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change51o that hetheory otonly ccounts or heoccurrence faid transfersbut lso for heir omestic conomic ndpolitical onsequences.Yet frontieruestions emain. or nstance, e know hat here re nstances faid givenforhumanitarianeasons ndof aid givenforpolicycompliance ea-sons.Resolvingwhich ircumstancesre conducive o which ypeof aid is animportantesearch oal. Equally mportants thenaturefthe iddeliverymech-anism. t appears hat ilateral id,thetypediscussedhere, s more menable oaid-for-policyeals than s multilateralrnongovernmentalrganizationNGO)aid since hedonor anmore xplicitlyiepolicy omplianceobilateral id.Butwhethermultilateralid or NGO donations vercome herecipient ountry'sregime's olitical urvivalncentivesemains nexplored.ushing hesedebatesforwardmust urely e among he mportantext tepsforthosewho wish tobetternderstandidpolicy r wish o furtherrobe hereliabilityfthe elector-ateperspectiven aid.

AppendixInthis ectionwe derive he ikelihood unctionssociatedwith he heoretical odel.Thisanalysis uggestshat lthoughtandard iscrete hoicemodels, uch s logit rprobit,reappropriateoanalyzewhetherid is given, tandardegressionpproachesoestimatingthe mount f aidareproblematic. e derive ur conometric odelusing standardatentvariable ormulation,herey*representshemaximum mount eaderAL wouldpayforthe ptimaloncessionndy2representshe mount equiredopurchaseheoptimal on-cessionfrom eaderBL. Weobserve conomic id,y= y%, nly fy*> y%.Suppose standardinear pproach: *= x^i + ei andy2= x2f32 e2,whereei9eB)are error erms hatwe assumearebivariatelyormally istributed ithmean zero andvariance 1 ^j . We nextderive he ikelihood unctionssociatedwith hismodel forobservationsf aidgiving ndnonaidgiving.If aid is observed, > 0, theny% ytwhich mplies hat 2 ^ xAf$A x2f32 sa-Thereforehe rrors,2, on observationsf aid giving re truncatednd ie inthe nterval(-00, ti/3i x2/32 ei). Unfortunatelyhismakes he ikelihoodery ifficulto calculatebecausetherightruncations stochasticnd therefore e mustntegrate\out.Given i,the distributionf e2 = y - x2fi2 s normalwithmeanex(ri2/(T^nd variance 722(1- ([-)del9

iv^i-K/^^)2)/where I> ndrethe tandard ormal istributionnddensity.51. Bueno deMesquita nd Smith 009.



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By wayofcomparison,he tandardegressionramework,= zy+ v,where [v2] =&1 has a likelihood unctionfcf>((y zy)/orv).hus, he oefficientstimateseportednTable 2 are nconsistent.The situations lessproblematicor bservationsfno aidgiving.No aid implies *


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APolitical conomy f Aid 339

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340 International rganization

. 1978.A Foreign olicyModel of theDistributionfBritish ilateralAid, 1960-70. BritishJournal fPoliticalScience 8 (3):3 13-31.Millenniumhallenge orporation.008.ProgramsndActivities. vailable t

Documents

18. DT. Political Economy of Aid