Tradeoffs of foreign assistance for the weakest-link global public goods

Abstract

Weakest-link global public goods, such as international security, communicable disease prevention or illegal trafficking control, create a strong incentive for rich countries to unilaterally compensate for insufficient supplies of the 'weakest-link' inputs by poor countries. We analyze how foreign assistance affects the donor and recipient countries, accounting for discontinuities and non-monotonicities originating from switches between structurally different equilibrium profiles. We show that voluntary foreign assistance improves provision of the public good and also welfare, but makes the donor country worse off for the medium level of income inequality. Unless inequality is large or small, a rich country may benefit from a commitment to the absence of assistance. © 2010 Springer Science+Business Media, LLC.