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

This paper uses insights from history and the principal-agent framework to argue that international organizations (agents) have more autonomy than merely the amount delegated to them by powerful countries (principals). The higher amounts of agent power than the literature currently concedes are underpin by agent contributions to institutional design, bureaucratic culture, external shocks, and asymmetric information problems. In particular, principals have difficulty monitoring and controlling agents on tasks entailing 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 countries' influence than previous literature suggests