Optimal decision rules in multilateral aid funds

Abstract While existing research has suggested that delegating foreign aid allocation decisions to a multilateral fund may incentivize recipient countries invest in bureaucratic quality, our analysis links the fund’s decision rules recipient-country investment by explicitly modeling decision-making within funds. We find majority rule induces stronger competition between recipients, resulting higher investments quality. Despite this advantage, unanimity can still be optimal since increased under comes at cost of low minority. The qualitative predictions model rationalize novel empirical finding that, relative organizations use consensus rule, are more responsive changes