Sovereign debt assistance and democratic decision-making

Ruth Ben-Yashar, Miriam Krausz, Shmuel Nitzan

Research output: Contribution to journalArticlepeer-review

Abstract

Organizational reforms stimulating democratic decision-making play a role in the economic effectiveness of concessional debt and debt relief. Effectiveness is defined as the increase in project approval produced by debt assistance. This claim is supported by a theoretic model illustrating the role of democratic decision-making in increasing lending as well as in determining the effectiveness of debt assistance. Using the framework of group decision-making in a fixed-size committee, we suggest a novel explanation to the advantage of conditioning debt assistance on organizational reforms that target the decision-making structure in organizations. The results imply that if the aid organization can affect the level of democratization in organizations, it can exploit its advantage and set the debt assistance that induces the maximal increase in project approval. We derive conditions under which organizational reforms that impose various forms of democratic norms in decision-making are important for increasing the effectiveness of debt assistance. We also point to the case where replacing an autocratic decision maker can cause debt assistance effectiveness to decline.

Original languageEnglish
Pages (from-to)930-943
Number of pages14
JournalJournal of Public Economic Theory
Volume25
Issue number5
DOIs
StatePublished - Oct 2023

Bibliographical note

Publisher Copyright:
© 2023 Wiley Periodicals LLC.

Keywords

  • autocracy
  • concessional lending
  • debt relief
  • democracy
  • reforms

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