Can donor coordination solve the aid proliferation problem?

We augment Holmstrom's (1982) team production model in the context of aid effectiveness. In addition, we show how donor proliferation leads to inefficient supply of aid in the recipient country because of the free-riding problem faced by the donors. Our empirical findings support the theoretical prediction with regard to donor proliferation. However, this raises the question whether the current efforts in the international aid community with regard to donor coordination can effectively solve the aid proliferation problem.

► We augment Holmstrom's (1982) team production model in the context of aid effectiveness. ► Donor proliferation leads to a free-riding problem faced by the donors. ► Our empirical findings support the theoretical prediction with regard to donor proliferation. ► It is uncertain that donor coordination can effectively solve the aid proliferation problem.