Elegantes Telefax - JAV der TUB - TU Berlin

7
donor countries (and to some extent recipient countries) join and delegate the transfer
of their resources to an international organization, thus giving up control over the
recipients and the forms of aid and adding to agency slippage. Rodrik (1995) explains
the function of multilateral development banks (MDB) as being complementary
to both, the private capital markets and bilateral aid programs. Compared to the operation
of private capital markets which he characterizes as being at least partially
inefficient due to their cyclical nature and geographical concentration despite the
huge amounts of transfers, the multilateral development banks provide information
gathering and monitoring services about the recipient countries which have public
goods quality. The combination of lending with information gathering is based on the
fact that the lending reduces the transaction costs of information gathering and support
for information among the recipient countries (Martens 2005). Secondly, the
lending increases the value of the information made public by the MDB as they
commit their own resources based on the information assembled. Compared to bilateral
aid agencies, the MDB have the advantage of a higher coverage and economies
of scope in information gathering and monitoring. The second advantage lies in
“achieving collective action in the presence of heterogeneous preferences among
donors” (Martens 2005, 656) when they need to cooperate to achieve a common
public good in the recipient country as an economic reform program or a sector reform.
They are in a better position to exercise aid in a conditional way. Because of
their lack of (national donor country) conflict of preferences they help avoiding the
spill over of these conflicts to recipient countries. But as these advantages come at
the price of losing control compared to bilateral aid agencies as an instrument of national
foreign policy, multilateral aid covers roughly only a third of the total of foreign
aid. 4
The mechanisms of control for the principal tend to be similar for MDB as for the
other governmental agencies (Hawkins et al 2006). The major instrument potentially
available for the principal is to define rules for the behavior of the agent. Here, the
principal has the choice to define the rules of the behavior – leaving relatively little
discretion to the agent - or to define the objectives and let the agent make the
choices about the procedures in achieving the objectives. The actual contract between
the principal and an agent will vary between the two approaches as they are
considered to be ideal points along a dimension of rules versus discretion. The general
assessment is that a rule focused contract fits better for a standardized task with
a stable organizational environment while a discretion-based contract is best suited
under circumstances of high uncertainty and thus when a high degree of flexibility is
desirable and or when the task requires specialized knowledge possessed by only
4 A further advantage of multilateral aid is that it provides the national governments in the donor coun-