Discussion paper

DP4781 Intermediation by Aid Agencies

This Paper models aid agencies as financial intermediaries that do not make a financial return to depositors, since the depositors' concern is to transfer resources to investor-beneficiaries. This leads to a significant problem of verification of the agencies' activities. One solution to this problem is for an agency to employ altruistic workers at below-market wages: workers can monitor the agency's activity more closely than donors, and altruistic workers would not work at below-market rates unless the agency were genuinely transferring resources to beneficiaries. We consider conditions for this solution to be incentive compatible.


Seabright, P and C Rowat (2004), ‘DP4781 Intermediation by Aid Agencies‘, CEPR Discussion Paper No. 4781. CEPR Press, Paris & London. https://cepr.org/publications/dp4781