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Working Papers

A Political Economy of Aid: Bruce Bueno de Mesquita and Alastair Smith

We model how the size of a leader’s support coalition and government revenues affect trades between policy concessions and aid. We find that aid benefits donor and recipient leaders, while harming the recipient’s, but not the donor’s, citizenry. The willingness to grant policy concessions for aid depends on how easily leaders can reimburse supporters for their concession. As coalition size increases, incumbents rely more on public goods to reward supporters, making it difficult to compensate for policy concessions. Small coalition leaders rely more on private goods to retain office, making it easier for them to grant policy concessions for aid. Empirical tests of bilateral aid transfers by OECD nations between 1960 and 2001 support the predictions that 1) aid is given by wealthy, large coalition systems; 2) relatively poor, small coalition systems are most likely to get aid; but, 3) conditional on receiving aid, the amount increases as the recipients coalition size, wealth and policy salience increase. Evidence suggests that OECD members have little humanitarian motivation for aid giving.

Political Survival and Endogenous Institutional Change:  Bruce Bueno de Mesquita and Alastair Smith

Incumbent political leaders risk deposition by challengers within the existing political rules and by revolutionary threats. Building on Bueno de Mesquita et al’s (2003) selectorate theory, the model here examines the policy responses of office seeking leaders to revolutionary threats. Whether leaders suppress public goods such as freedom of assembly and freedom of information to hinder the organizational ability of potential revolutionaries or appease potential revolutionaries by increasing the provision of public goods depends, in part, upon the sources of government revenues. Empirical tests show that governments with access to revenue sources that require few labor inputs by the citizens, such as natural resource rents or foreign aid, reduce the provision of public goods and increase the odds of increased authoritarianism in the face of revolutionary pressures. In contrast, without these sources of unearned revenues governments respond to revolutionary pressures by increasing the provision of public goods and democratizing.