Rune Jansen Hagen

Buying Influence: Aid Fungibility in a Strategic Perspective

I study equilibria of non-cooperative games between an aid donor and a recipient when there is conflict over the allocation of their combined budgets. The general conclusion is that a donors influence over outcomes is increasing in the share of the available resources it controls; if this share is large enough, aid fungibility is not important as the donor achieves its most preferred allocation. The game-theoretic approach to fungibility is contrasted with the traditional non-strategic approach. I argue that the former is superior as it derives final allocations instead of assuming them, making analysis of the sources of influence over outcomes possible.

Do Non-Enforceable Contracts Matter? Evidence from an International Lab Experiment

Many verifiable contracts are impossible or difficult to enforce. This applies to contracts among family and friends, contracts regulating market transactions, and sovereign debt contracts. Do such non-enforceable contracts matter? We use a version of the trust game with participants from Norway and Tanzania to study repayment decisions in the presence of non-enforceable loan contracts. Our main finding is that the specific content of the contract has no effect on loan repayment. Rather, the borrowers seem to be motivated by other moral motives, which contributes to explaining why they partly fulfill non-enforceable contracts. We also show that some borrowers violate the axiom of first order stochastic dominance when rejecting loan offers, which partly may reflect negative reciprocity, but also seems to reflect a fundame tal aversion against uncertainty.

The electoral politics of public sector institutional reform

Abstract For politicians in office, reforming public sector institutions is an investment; they must spend resources now in order to achieve future gains. There are no property rights attached to these institutions. Therefore, politicians need to remain in control if they are to reap the full benefits of reform. When the probability of re-election is unaffected by the reform choice, political polarisation between incumbent and challenger results in a lower critical value for the cost of investment by reducing the benefits of reform compared to a benchmark of no uncertainty. The reduction in the cut-off rate is increasing in the degree of polarisation. However, if undertaking reforms increases this probability, the likelihood of investment might increase, the more so the greater the polarisation in preferences.

Rents and the Political Economy of Development Aid

Empirical studies suggest little impact of foreign aid on growth on average. As aid can be viewed as a sovereign rent akin to natural resource rents, it is likely that rent seeking plays a role in explaining this disappointing outcome. The analytic starting point of this paper is the long chain of agents connecting donors in rich countries with beneficiaries in poor countries, making aid a contestable rent for recipients at both the international and the domestic levels. Thus, rent seeking can distract attention and divert resources from more important sources of long-term progress. Moreover, there are serious incentive problems on the donor side of the relationship. Empirically, the effects seem quite heterogeneous and hence more research is needed to further our understanding of this complex system.

Help not needed? Optimal host country regulation of expatriate NGO workers

Motivated by interventions in poor countries to increase the use of local labor in foreign nongovernmental organizations (NGOs), we address the behavior of these organizations under host government regulation. We extend existing NGO models by distinguishing between local workers and expatriates. The model covers both NGO monopoly and competition in the market for donations. Assuming that NGOs maximize output, we show that regulations in the form of a quota on the number of expatriates or a work permit fee for foreigners reduces NGO output, but increases employment of locals. The optimal quota is more likely to bind in the market structure generating the highest total fundraising surplus. An optimal work permit fee is equivalent to an optimal quota in both the monopoly and duopoly cases. For both instruments, the optimal tightness of regulation is decreasing in the weight the government attaches to the public good relative to domestic incomes and in the importance of NGO output to the supply of the public good. Aggregate NGO output and the level of the public good produced could be higher with a monopoly NGO.

Losing Concentration? Lessons from a Swedish Aid Policy Reform

Sweden is one of the donor countries that signed up for the Paris Agenda, which among other things advocated reducing aid dispersion. It also adopted its own geographical concentration policy in 2007. My empirical analysis shows that Sweden managed to achieve this goal only for two years following the reform and that this was followed by backsliding. Moreover, its current aid policy framework barely mentions the topic. I argue that a major reason was the failure to institutionalize the policy. This left it vulnerable to the regular politics of aid, which tend to generate both geographic and thematic spread. Reduced peer pressure, as the international community has moved away from the Paris Agenda, might also have contributed.