Reducing misappropriation of foreign aid funds

The experimental treatments aim at testing the potential of three institutions of funds allocation from a donor to the providers of increasing contributions to the public good. In each treatment, participants are divided in groups of four and remain fixed throughout the experiment. In each group, one player has the role of donor and the rest of the players have the role of providers. The providers can make direct contributions to a public good. The donor cannot make direct contributions to the public good, but can contribute only indirectly by transferring funds to the providers. The donor’s task is to decide on the allocation of a given budget among the providers.

The treatments are: free communication (FC), structured communication (SC) and audit (A). FC mimics the case in which providers compete for funds via diplomatic talks. In the experiment, the communication is unrestricted and takes place in a chat window. 

SC is akin to competition via grant proposals whereby applicants make promises on the use of the received funds and explicit requests for funds. In the experiment, the promise is structured in the sense that each provider can only state how much she contributes to the public good for each dollar received from the donor. However, this promise does not bind. No other communication is allowed.

In A the donor can check the contribution of a chosen provider and punish her if the contribution is below the commitment made during the communication stage. For this treatment we will use the form of communication that performs the best out of FC and SC.

The language of the experiment will be neutral and there will be no mention of donor, beneficiary, provider or public good. 

Our hypothesis is that A leads to the highest provision of the public good, but that this is higher in FC than in SC.