, Volume 1, Issue 4, pp 337-357,
Open Access This content is freely available online to anyone, anywhere at any time.
Date: 31 Oct 2006

Do donors cooperatively fund foreign aid?

Abstract

Donor’s demand equations for alternative forms of aid are derived for three allocation processes: noncooperative Nash-Cournot, cooperative Lindahl, and bureaucratic. Based on OECD data for official development assistance for 1970–2001, we apply non-nested tests to distinguish between Nash-Cournot and Lindahl reduced-form equations for 15 major donor nations. Noncooperative Nash-Cournot behavior characterizes many donors, with a few abiding by bureaucratic behavior and none by Lindahl behavior. Joint products are present for multilateral and bilateral giving. Despite the common-pool nature of giving to multilateral organizations, countries derive donor-specific benefits and often view others’ donations as complementary to their own gifts.