Since the late 1990s a selection on policy approach to aid was advocated such that more aid should be allocated to countries with good policies. A number of donors accepted this recommendation, including the World Bank, but there is little evidence that this has occurred. Donors, including the...

We propose a repeated moral hazard model with full commitment and limited punishment to study the problem of aid allocation in environments characterized by asymmetric information. The donor (principal) finances a three-period development program and the elite of the recipient country (agent),...

The 1990s have witnessed an increase in private capital inflows to sub-Saharan African (SSA) countries. Such capital flows are viewed as volatile and hence a threat to macroeconomic stability. A sudden reversal of capital inflows was one factor underlying the East Asian crisis of 1997. This...