Analysis of Control Mechanisms for Multi-Bi ODA between Donor Countries and Multilateral Organizations: Based on the Principal-Agent Model

Abstract

Multi-bi ODA – a hybrid form of bilateral aid - is a finance for development (or development financing) contributed by donor countries to multilateral organizations that is earmarked at any level – to a specific country, region, sector or theme and has unique positioning which contains the characteristics of both bilateral and multilateral aid in its aid framework. Over the past few decades, the development environment has become more complex and multifaceted than previous years due to the increasing interactions among nations and emergence of new global challenges (e.g., HIV/AIDS, natural disasters, global warming, etc). Notably, this has doubled the importance of multilateral cooperation since it enables donor countries to cope with the changing environment and increasing global challenges with abundant expertise, hands-on experiences, and specialized knowledge supported by multilateral organizations. As a result, this has fostered the emergence of a new development financing termed multi-bi ODA (also referred to as multi-bilateral ODA) in that it maintains strong ties with both donor countries and multilateral organizations. In this multi-bi aid framework, donor countries seek to cooperate with multilateral organizations in various development activities despite the bilateral nature of multi-bi ODA, and as a result, the roles of multilateral organizations have gained importance and the relationship between donor countries and multilateral organizations has been further highlighted in the multi-bi aid framework compared to the ordinary bilateral and multilateral aid. However, it is notable that the relationship of donor countries and multilateral organizations in multi-bi ODA is not always cooperative and mutually beneficial since the both sides have their own interests and strategic goals on various development issues. In fact, the complex and multifaceted development environment that was explained earlier is not only the issue of donor countries and recipient countries, but it can also be applied to the relationship of donor countries and multilateral organizations in multi-bi ODA. That is, both donor countries and multilateral organizations seek to cooperate on development but it is a remaining dilemma that they come to have some amount of conflict in the process of development due to the changing development environment and increasing global challenges. In this sense, this study has adopted a Principal-Agent Model to analyze the relationship of donor countries and multilateral organizations in multi-bi ODA and seeks to focus on the hybrid nature of multi-bi ODA for further analysis.

Key Words: multilateral cooperation, multi-bi ODA, finance for development, conflict of interest, Principal-Agent Model