Why do aid agencies exist?

Rather than asking what aid agencies should be doing, this article asks the question: "Why are there many and different aid organisations and not just one?". The article argues that the main role of aid agencies is to mediate between donors’ and recipients’ interests, or preferences, and that there would be no need for mediation when donor and recipient interests were fully convergent. The article aims to provide a cross-institutional perspective to explain the relative advantages and disadvantages of each type of agency within a single explanatory model.

The article concludes that:

• if all donors were fully to share a single objective – for instance, poverty reduction - then one single worldwide aid agency would be sufficient, but fhe fact that a multitude of aid agencies exists constitutes a strong indicator that a single fully shared aid objective is an unrealistic assumption
• multilateral development banks increase the consumer surplus or goodwill surplus for donor countries
• strengthening recipient countries’ institutions would constitute an improvement in governance, which would reduce aid transaction costs for the same level of ex-post uncertainty and would provide additional assurance to donors that aid will be used for the agreed purposes. Although this might mean that donors’ preferences would fully converge, meaning that all donors could delegate aid delivery to a single agency, this is not a realistic policy because there is a healthy divergence of views among donors
• a single aid objective, and harmonisation and alignment of procedures and policies, may increase benefits for the recipients but may also diminish donors’ willingness to pay because it reduces their perceived consumer surplus in terms of their own domestic policy interests.