Strategic Decision-making by Donors and Aid Intermediaries on the Allocation of Development Assistance for Health in Sub-saharan Africa

Katharina M.K. Stepping (IEL Carlo Alberto/Philipps-University Marburg)

Abstract: The distribution of development assistance for health in sub-Saharan Africa is the visible result of decisions made by donors and aid intermediaries. Aid intermediaries have become increasingly important as connecting link between donors and recipients transferring. Their heterogeneous group comprises bilateral aid agencies, multilateral organizations, private foundations, public-private partnerships and international non-governmental organizations. Institutions, as rules of the aid game, constrain the actions of aid intermediaries and influence transaction costs and incentives for the organizations. The strategic decisions made by donors and aid intermediaries are isolated using a game-theoretical approach. The process of aid allocation is portrayed as a repeated game with two sets of players. Simply speaking, donors pursue an array of goals by donating financial resources, while aid intermediaries aim at securing funding in order to guarantee their organizational survival. Potential donors evaluate aid intermediaries based on their trustworthiness. This evaluation influences volume, duration and frequency of a donation, ultimately defining the strategy played by a donor. The strategic decision made by an aid intermediary depends on its reputation, history and dependency on funding. The aid intermediary decides the aid-financed health intervention. However, the donor has an indirect but powerful voice in the aid allocation process because of the importance of funding.