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This paper shows that donors that maximize relative aid impact spread their budgets across many recipient countries in a unique Nash equilibrium, explaining aid fragmentation. This equilibrium may be inefficient even without fixed costs, and the inefficiency increases in the equality of donors' budgets. The paper presents empirical evidence consistent with theoretical results. These imply that, short of ending donors' maximization of relative aid impact, agreements to better coordinate aid allocations are not implementable. Moreover, since policies to increase donor competition in terms of aid

The paper studies the role of social capital in the urban informal sector in Bolivia. It shows that a formal firm has about 6.4 times the sales of an informal firm with no social capital, but informal firms use their social capital to compensate for the lack of formal productivity benefits. By being formal, firms obtain permanent visibility because they can operate a shop or a visible production location and they can produce in locations with better public infrastructure. Informal firms, in contrast, sell in one place -- typically in street markets in front of formal shops -- and produce in another -- typically in the outskirts. Social capital increases accessibility of informal firms and provides them with security benefits at their production location. [Copyright Elsevier B.V.]

In many situations, irreconcilable disagreements between players lead to costly ownership disputes over assets—for example, in case of joint ownership. This article studies the role of such disputes in a situation where two players have to make a transaction‐specific investment and when contracts are incomplete. I show that potentially contested ownership may mitigate the inefficiency of investments due to the incompleteness of contracts generating an exchange surplus that comes closer to the first‐best surplus as compared to any other ex ante distribution of ownership typically discussed in the literature following the influential work by Grossman, Hart, and Moore. If the contest is an all‐pay auction, each player makes a transaction‐specific investment as if he or she owns the asset. This article can explain why shared ownership—as for example in equity joint ventures, family firms, start‐up partnerships, and so on—is an important part of today's corporate landscape.

This paper shows that the increased policy-selectivity of aid allocations observed in recent years provides recipient countries an incentive to improve policies. The paper estimates that a change in the World Banks Country Policy and Institutional Assessment policy index from 1.5 to 2 for a recipient is associated with an increase of about 13 percent in aid. The analysis also finds a modest but statistically significant positive relationship between the share of policy-selective aid in the global aid budget and policy, suggesting that policy-selective aid improves policies. This effect is properly identified, as the share of policy-selective aid in the global aid budget is exogenous to recipient country policy choices. Furthermore, the paper provides a game theoretic model that establishes the link between the policy-selectivity of the global budget and better recipient country policies in equilibrium.

Some multilateral agencies implement aid projects in a broad range of sectors, with aid disbursements showing a strong overlap with those of bilateral donors. The question then arises of why do bilateral donors delegate sizable shares of their aid to non-specialized agencies for implementation? This paper develops a game theoretic model to explain this puzzle. Donors delegate aid implementation to the multilateral agency (ML) to strengthen the policy selectivity of aid, incentivizing policy improvements in recipient countries, in turn improving aid's development effectiveness. Bilateral donors are better off delegating aid to ML even when they are purely altruistic but disagree on how aid should be distributed across recipients. Key for our result to hold is that ML searches some middle ground among disagreeing donors. Aid selectivity—in terms of both policy and poverty—emerges endogenously and is credible, as it is the solution to ML's optimization problem. Moreover, the model shows that if one sufficiently large donor is policy selective in its aid allocations, there is no need for other donors to be policy selective. The World Bank's aid program for lower-income countries, the International Development Administration (IDA), is shown to fit the assumptions and predictions of the model. Specifically, IDA is a dominant donor in most of its recipient countries and is much more policy and poverty selective than bilateral aid. Donors view it as a public good, and contribution more to it when bilateral aid is less selective. Potential threats to IDA's role as a dominant, policy-selective donor include the emergence of nontraditional donors, changes in voting shares, and traditional donors' increasing use of earmarked contributions.