Institutional Autonomy and Donor Strategic Interest in Multilateral Foreign Aid: Rules vs. Informal Influence

Applications of principal-agent theory to the study of international organizations overwhelmingly suggest that agents only have as much autonomy as principals delegate to them. By contrast, this article argues that external shocks and agents’ contributions to underappreciated institutional design features have enabled agents to structure decision-making in line with their normative interests. In particular, principals have difficulty monitoring and controlling agents on tasks involving longer time horizons. This article analyzes the argument’s empirical relevance in Multilateral Development Bank (MDB) lending, a longer-term task/process that is of high strategic importance to powerful donor country principals. Consistent with the argument, the article shows that staff-led ratings of countries’ institutional environments at four MDBs are more important determinants of lending outcomes than measures of donor strategic interest. Moreover, the ratings are also consistently and significantly related to other non-lending outcomes in replicating many prior studies. Overall, agents’ formal rules, which are guided by their normative interests, enable multilateral aid to be less captured by powerful country principals’ informal influence than previous literature suggests. [Updated Paper]