China's Entry into the Foreign Aid Game: Implications for the Donor-recipient Relationship

Tobias Broich (Maastricht University / Ecorys)
Kaj Thomsson (Maastricht University)

Abstract : We develop an analytic narrative with focus on the recent entry of China into the foreign aid game in Africa, with particular emphasis on the interaction between China and Western donors. We first model a recipient country’s decision to accept aid from either just one, or two (competing), donors as a dynamic game where aid by the traditional donor, but not by the new donor, is characterised by political conditionality in the form of good governance reforms. The implications of the model are then applied to Ethiopia using both data and qualitative evidence for the post-Cold War era.

Rotation, Performance Rewards, and Property Rights

Weijia Li (Monash University)

Abstract : Economic growth needs a strong and well-functioning government. But a government too strong can dominate private firms, leading to a holdup problem that is especially severe in autocracies. This paper studies how to constrain officials in autocracies through personnel rules, with a special focus on rotation and performance evaluation. Through a game theoretic model, I show that rotation or performance evaluation alone actually makes holdup problems even worse. But it is exactly their combination that covers each other's weakness and solves holdup problems together. Frequently rotated and carefully evaluated, officials also develop few entrenched interests in existing firms. This helps avoid crony capitalism and encourages Schumpeterian "creative destruction", solving another key problem with government-assisted development. Thus, rotation and performance rewards resolve the acute tradeoff between commitment and flexibility, a feature rarely satisfied by other commitment devices. Firm-level panel data from China are consistent with the key predictions of the model.

Crafting the Dictator’s Military: Loyalty, Efficiency, and the Guardianship Dilemma

Jack Paine (University of Rochester)

Abstract : Although some dictators construct coup-proofed and personally loyal militaries, others favor professional militaries that more efficiently repress outsider threats. Existing research analyzes the purportedly ubiquitous “loyalty-efficiency” tradeoff that dictators face and the “guardianship dilemma” that strong outsider threats create. This paper shows these two tradeoffs are intimately related by studying the orientation and strength of outsider threats. In the formal model, a dictator chooses between a personalist and professional military. The military can repress to defend the dictator, stage a coup, or transition to outsider rule. Non-revolutionary threats do not generate a loyalty-efficiency tradeoff. Personalist militaries’ lower reservation value under outsider rule yields considerably stronger incentives than professional militaries to repress non-revolutionary threats—and, consequently, higher equilibrium repressive efficiency. The dictator’s strict preference for the personalist military also eliminates the guardianship dilemma. However, revolutionary threats trigger both tradeoffs. A strong, revolutionary threat encourages choosing a professional military, raising coup likelihood.