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Political Economy of the International Development Cooperation

Political Economy of the International Development Cooperation. Political sociology of development IHEID - Workshop 1 – October 2, 2009. Objectives. At the end of the five workshop sessions, you should :

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Political Economy of the International Development Cooperation

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  1. Political Economy of the International Development Cooperation Politicalsociology of development IHEID - Workshop 1 – October 2, 2009

  2. Objectives • At the end of the five workshop sessions, you should : • Have gained knowledge about the international development cooperation (concepts / actors / institutional arrangements) • Have become familiar with the theoretical apparatus underlying IDC practices

  3. Sessions

  4. The evolution of the development doctrine and modalities - Milestones(1) • 1950-70 : Prevalence of “project approach” • Large investment plans ; focus on industrialization • Gradual shift towards basic needs (as of 1965) • Few levels of intervention (Central State Administration) • 1980-mid 90s : “Get the prices right” • Washington Consensus; economic reforms (SAP); conditionalities ; from Project to Program aid • “Multilateralisation” of aid • Development assistance faces increased critical appraisal

  5. The evolution of the development doctrine and modalities - Milestones (2) • 95 -:“Get the institutions right” • Post-Washington Consensus : focus on governance and institutional issues • Increased and broadened conditionalities - economic and political : “good governance” • Basic services and redistributive functions of the State are back on stage (cf MDGs in 2000, WDR in 2004)

  6. The dominant « political economy » in the international aid system Neo-institutional economy Public choice Neoclassical economy

  7. Neoclassical paradigm • Methodological individualism • Aggregation of individual behaviors • Behavior hypothesis : homo œconomicus • The agent pursues his self interest • Market hypothesis : pure and perfect competition • Information available to all ; no transaction costs • Role of the State / role of the Market • Auto regulatory market • Role of the state : minimal, i.e. correction of market imperfections (externalities, natural monopolies …)

  8. Public Choice Theory (PCT) • Research program initiated mid-20th century, PCT applies a neoclassical perspective to the analysis of the political decision-making process • PCT is used to explain how political decision-making results in outcomes that conflict with general interest • Political Market • Rent seeking • State : sum of individual interests ; insists on the failure of public interventions • PCT is the dominant approach in the 1980s

  9. Neo-institutional economy • Research program originating to R. Coase article “The nature of the firm” (1937) which emphasizes the institutional structure of production and exchange • Address specific issues related to collective action : • Transaction costs • Motivational problems • Information problems • Centrality of two notions : incentives and institutions

  10. Transaction costs and International Aid transfers • Ex ante : search and information costs ; bargaining and decision costs • Ex post : policing and enforcement costs

  11. Motivational problems (1)Public goods and free riding (Source : Vicent Ostrom and Elinor Ostrom, Public goods and public choices, 2000)

  12. Motivational problems (1)Public goods and free riding • Problem of free-riding : “Unless the number of individuals is quite small, or unless there is coercion or some other device to make individuals act in their common interest, rational self-interested individuals will not act to achieve their common or group interests” (Mancur Olson, 1965 : 2)

  13. Information problems • Principal-agent • Moral hazard • Adverse selection

  14. Motivational problems (2)Perverse incentives • In the policy process • In the development Aid System • In donor Agencies • In Recipient Countries • The “Samaritan’s dilemma”

  15. The broken feedback loop Donateur Récipiendaire

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