Abstract:
This paper examines in depth one of the potential causes of the low
performance of foreign aid; in particular, the role incentive structures within
international donor agencies could play in leading to ‘a push’ to disburse money.
This pressure to disburse money is termed as the ‘Money-Moving Syndrome’
(MMS). The theoretical analysis in this paper relies on the principal–agent theory
to explore how donor agencies’ institutional incentive systems may affect the
characteristics of an optimal and efficient incentive contract and thus give rise to
the MMS. The basic framework of the principal–agent theory was innovatively
adapted to fit the organizational settings of donor agencies. The model concludes
that the extent to which a performance measure based on the amount of aid
allocated within a specific period of time would lead to the MMS and affect aid
effectiveness depends on the level of ‘institutional imperatives’, the degree of aid
agency’s accountability for effectiveness, the level of corruption in recipient
countries and the degree of difficulty to evaluate development activities.
