Clientelism and Aid

Georges Casamatta and Charles Vellutini
Journal of Development Economics, Volume 87, Issue 2, October 2008, Pages 322-332

Using a model of probabilistic voting, we analyse the impact of aid on the political equilibrium of a recipient country or region. We consider politicians with mixed motives, interested in promoting social welfare but also valuing the benefits of holding office. We label as clientelistic the politician who most values the benefits of power. Using utilitarian social welfare as a benchmark, we conclude that the impact of aid on the political equilibrium and so quality of policy in the recipient country depends on the value of the elasticity of marginal consumption. When elasticity is low, the expected policy outcome moves further from the socially desirable policy set. This substitution of policy quality for aid can help to explain the poor performance of conditionality in improving policy. Perhaps more surprising is the opposite case, which arises for high values of elasticity of marginal utility: an increase in aid tilts the equilibrium policy towards the welfare-maximizing policy set.