James Buchanan and Development Cooperation

James Buchanan

The American economist and Nobel Prize winner James Buchanan recently passed away. Some quotes and information about his work were posted on MRU. A concept, first described by him, the Samaritan's Dilemma, is particularly relevant in development cooperation.

The Dilemma can be described as follows:

An actor who is deeply concerned about the well-being of others confronts situations in which other actors are in serious need of help.  The Samaritan is thus confronted with choosing between helping and not helping.  The recipient, on the other hand, has to decide how much effort the recipient will make to help them in this case.  If the Samaritan extends help and the recipient extents high effort, the Samaritan will be benefited substantially as will the recipient - but from the recipient's perspective, they could be even better off if low effort was expended.  (Ostrom et al, 2002)

The prospect of bank bail-outs is an example where money (from tax payers) to banks (the recipients) has reduced incentives for these banks to work efficiently and lower risks.

In development assistance recipient governments know that donors will provide money, whether they extent low or high effort. They will have therefore fewer incentives to create strong institutions, policies and rules. They may even have adverse initiatives: the worse the performance, the more development aid they will receive.  This is real. During workshops participants pretend to have a lot of problems using teaching resources, later admitting that they hope to receive more training (and per diems).  

The Samaritan's Dilemma reduces accountability, as recipients don't face the economic consequences of their actions (donors pick up the tab anyway).  When repeated (often the case in development assistance) the donor may create a situation where the recipient loses skills and motivation over time.

The Samaritan's Dilemma is primarily a motivation problem, but a lack of or asymmetric information creates similar problems, such as moral hazards. This is a situation where people receiving indiscriminate amounts of donor funds will be less inclined to engage in reforms or find alternative revenue sources.  

Solutions to the Dilemma lie in capacity development and ownership by recipients.  Capacity development intends to strengthen recipients' knowledge, skills and attitude to undertake certain activities, e.g. teach in a different way. Ideally, capacity development is coupled to a clear timeline, allowing recipients to gradually take responsibility for the actions.  The problem with capacity development is that recipients do not always have the incentives to invest in the knowledge and skills that the donor is trying to develop.  These incentives are determined by rules and institutions at higher (policy and constitutional) level.

Ownership is a buzzword in development cooperation and worth of a (soon to write) blog post in itself.

* The picture of James Buchanan is published under a Creative Commons Attribution-Share Alike 3.0 Unported license.

* Reference: Ostrom, E., Gibson, C., Shivakumar, S. and Andersson, K. (2002) Aid, Incentives, and Sustainability: An Institutional Analysis of Development Cooperation, Sida Studies in Evaluation 02/01, Stockholm, Sida, [online] Available from http://www.sida.se/