On the Optimal Timing of Foreign Aid
We offer a dynamic formulation of the aid process, in which questions of timing are central. It is shown that in most cases it is optimal to give the aid partly in a lump, at the outset, and partly as a flow, over time. However, if the donor and recipient cooperate, stock and flow aid may be of opposite sign. It is shown also that when marginal utility is of constant elasticity, the rate of flow of aid increases (decreases) if and only if the initial world stock of capital is less than (greater than) its steady-state value.
Dynamic aid allocation. Journal of International Economics, 95(2), 291-304.
This paper introduces a framework for studying the optimal dynamic allocation of foreign aid among multiple recipients. We pose the problem as one of weighted global welfare maximization. A donor in the North chooses an optimal path for international transfers, anticipating that consumption and investment decisions will be made byoptimizinghouseholdsintheSouth,andaccountingforlimitsintheextenttowhichrecipientscaneffectivelyab-sorb aid. We present quantitative results on optimal aid policy by applying our approach to a neoclassical growth model, where the scope for aid-funded growth is determined by the recipients' distance from steady-state.
The Use of Qualitative Information in Macro-Economic Policy Analysis
The majority of macro-economic policy models takes for granted that conflicts among objectives can be assessed by means of a tradeoff analysis. Such tradeoffs imply that sacrifices and benefits of various impacts of decisions can be measured on a cardinal scale, so that a conventional macro-economic utility or welfare analysis can be applied.