Hostname: page-component-78c5997874-dh8gc Total loading time: 0 Render date: 2024-11-16T11:18:14.989Z Has data issue: false hasContentIssue false
  • English
  • Français

Blockchain technology and the governance of foreign aid

Published online by Cambridge University Press:  26 November 2018

Bernhard Reinsberg Open the ORCID record for Bernhard Reinsberg [Opens in a new window]
Bernhard Reinsberg*
Affiliation:
University of Glasgow, School of Social and Political Sciences, Adam Smith Building, 40 Bute Gardens, Glasgow G12 8RT, UK
*
*Corresponding author. Email: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

Blockchain technology has been considered a vehicle to foster development in poor countries by promoting applications such as secure delivery of humanitarian aid, digital identity services, and proof of provenance. This article examines whether (and if so, how) blockchain technology can enhance the effectiveness and efficiency of foreign aid governance, thereby moving beyond completely anonymous contexts. Foreign aid governance is plagued by lack of credible commitments among states, which are further exacerbated by information asymmetries and which often undermine aid effectiveness. In this context, blockchain technology holds two promises. First, through the guaranteed execution of smart contracts, it can strengthen the credibility of state commitments, for example collective burden-sharing rules among a group of donors or recipient country compliance with policy conditionality in return for aid. Second, through leveraging prediction markets, blockchain technology can allay information problems related to the verification of real-world events along the entire aid delivery chain.

Keywords

Foreign aidBlockchainEthereumsmart contractsinternational organizationsWorld BankUnited NationsNew Institutional Economicscollective action problems
Type
Research Article
Information
Journal of Institutional Economics , Volume 15 , Issue 3 , June 2019 , pp. 413 - 429
Copyright
Copyright © Millennium Economics Ltd 2018 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Abbott, K. W. and Snidal, D. (1998), ‘Why States Act through formal International Organizations’, Journal of Conflict Resolution, 42(1): 3–32. doi: 10.1177/0022002798042001001.Google Scholar
Abramowicz, M. (2016), ‘Cryptocurrency-based Law’, Arizona Law Review, 58(2): 359–420.Google Scholar
Acharya, A., Fuzzo de Lima, A. T. and Moore, M. (2006), ‘Proliferation and Fragmentation: Transactions Costs and the Value of Aid’, Journal of Development Studies, 42(1): 1–21.Google Scholar
Aid:Tech (2018), Empowering Through Transparency: Transparency As A Service Token (TaaST), available at: https://aid.technology/ (accessed 29 October 2018).Google Scholar
Andreoni, J. (1990), ‘Impure Altruism and Donations to Public Goods: A Theory of Warm-glow Giving’, Economic Journal, 100(401): 464–477.Google Scholar
Annen, K. and Knack, S. (2015), On the Delegation of Aid Implementation to Multilateral Agencies. Washington DC.Google Scholar
Anwar, M. and Michaelowa, K. (2006), ‘The Political Economy of US Aid to Pakistan’, Review of Development Economics, 10(2): 195–209.Google Scholar
Arruñada, B. (2018), ‘Blockchain's Struggle to Deliver Impersonal Exchange’, Minnesota Journal of Law, Science, and Technology, 19: 55–105.Google Scholar
Bader, J. and Faust, J. (2014), ‘Foreign Aid, Democratization, and Autocratic Survival’, International Studies Review, 16(4): 575–595. doi: 10.1111/misr.12158.Google Scholar
Baliga, A. (2017), ‘Understanding Blockchain Consensus Models’, Persistent Systems, available at: https://www.persistent.com/wp-content/uploads/2017/04/WP-Understanding-Blockchain-Consensus-Models.pdf (accessed 20 October 2018).Google Scholar
Barnett, M. N. and Finnemore, M. (1999), ‘The Politics, Power, and Pathologies of International Organizations’, International Organization, 53(4): 699–732. doi: 10.1162/002081899551048.Google Scholar
Bigsten, A. and Tengstam, S. (2015), ‘International Coordination and the Effectiveness of Aid’, World Development, 69: 75–85. doi: 10.1016/j.worlddev.2013.12.021.Google Scholar
Buntaine, M. T., Parks, B. C. and Buch, B. P. (2017), ‘Aiming at the Wrong Targets: The Domestic Consequences of International Efforts to Build Institutions’, International Studies Quarterly, 61(2): 471–488. doi: 10.1093/isq/sqx013.Google Scholar
Buterin, V. (2014), A Next-generation Smart Contract and Decentralized Application Platform, available at http://blockchainlab.com/pdf/Ethereum_white_paper-a_next_generation_smart_contract_and_decentralized_application_platform-vitalik-buterin.pdf (accessed 29 October 2018).Google Scholar
Coase, R. H. (1937), ‘The Nature of the Firm’, Econometrica, 4(16): 386–405.Google Scholar
Cooley, A. and Ron, J. (2002), ‘The NGO Scramble: Organizational Insecurity and the Political Economy of Transnational Action’, International Security, 27(1): 5–39.Google Scholar
Coyne, C. J. and Ryan, M. E. (2009), ‘With Friends like These, Who Needs Enemies? Aiding the World's Worst Dictators’, Independent Review, 14(1): 26–44.Google Scholar
DANIDA (2017), Hack the Future of Development Aid. Copenhagen: Danish International Development Agency.Google Scholar
Davidson, S., de Filippi, P. and Potts, J. (2018), ‘Blockchains and the Economic Institutions of Capitalism’, Journal of Institutional Economics, 14(4): 639–658. doi: 10.1017/S1744137417000200.Google Scholar
Diedrich, H. (2016), Ethereum: Blockchains, Digital Assets, Smart Contracts, Decentralized Autonomous Organizations, London: Wildfire Publishing.Google Scholar
Dietrich, S. (2013), ‘Bypass or Engage? Explaining Donor Delivery Tactics in Foreign Aid Allocation’, International Studies Quarterly, 57(4): 698–712. doi: 10.1111/isqu.12041.Google Scholar
Dijkstra, H. (2014), ‘Shadow Bureaucracies and the Unilateral Control of International Secretariats: Insights from UN Peacekeeping’, Review of International Organizations, 10(1): 23–41. doi: 10.1007/s11558-014-9203-7.Google Scholar
Dreher, A., Sturm, J.-E. and Vreeland, J. R. (2009), ‘Development Aid and International Politics: Does Membership on the UN Security Council Influence World Bank Decisions?’ Journal of Development Economics, 88(1): 1–18.Google Scholar
Dreher, A. and Voigt, S. (2011), ‘Does Membership in International Organizations Increase Governments’ Credibility? Testing the Effects of Delegating Powers’, Journal of Comparative Economics, 39(3): 326–348. doi: 10.1016/j.jce.2011.04.003.Google Scholar
Easterly, W. (2005), ‘What Did Structural Adjustment Adjust?: The Association of Policies and Growth with Repeated IMF and World Bank Adjustment Loans’, Journal of Development Economics, 76(1): 1–22, available at www.sciencedirect.com/science/article/pii/S0304387804000872.Google Scholar
Easterly, W. (2014), The Tyranny of Experts: Economists, Dictators, and the Forgotten Rights of the Poor, New York: Basic Books.Google Scholar
Faulkner, P. and Runde, J. (2013), ‘Technological Objects, Social Positions, and the Transformational Model of Social Activity’, MIS Quarterly, 37(3): 803–818.Google Scholar
GIZ (2018), Blockchain for Sustainable Development, Eschborn: Gesellschaft für Internationale Zusammenarbeit.Google Scholar
Graham, E. R. (2017), ‘The Institutional Design of Funding Rules at International Organizations: Explaining the Transformation in Financing the United Nations’, European Journal of International Relations, 23(2): 365–390. doi: 10.1177/1354066116648755.Google Scholar
Greif, A. (1993), ‘Contract Enforceability and Economic Institutions in Early Trade: The Maghribi Traders’ Coalition’, American Economic Review, 83(3): 525–548.Google Scholar
GSMA (2017), Blockchain for Development: Emerging Opportunities for Mobile, Identity and Aid, London: GSMA, available at https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2017/12/Blockchain-for-Development.pdf (accessed 20 October 2018).Google Scholar
Gulrajani, N. (2017), ‘Bilateral Donors and the Age of the National Interest: What Prospects for Challenge by Development Agencies?’ World Development, 96: 375–389. doi: 10.1016/j.worlddev.2017.03.021.Google Scholar
Gutner, T. and Thompson, A. (2010), ‘The Politics of IO Performance: A Framework’, Review of International Organizations, 5(3): 227–248. doi: 10.1007/s11558-010-9096-z.Google Scholar
Harris, J., Hunter, J. and Lewis, C. M. (1995), The New Institutional Economics and Third World Development, London and New York: Routledge.Google Scholar
Hart, O. and Moore, J. (1999), ‘Foundations of Incomplete Contracts’, Review of Economic Studies, 66(1): 115–138.Google Scholar
Headey, D. (2008), ‘Geopolitics and the Effect of Foreign Aid on Economic Growth: 1970–2001’, Journal of International Development, 20(2): 161–180.Google Scholar
Hendrickson, J. R. and Luther, W. J. (2017), ‘Banning Bitcoin’, Journal of Economic Behavior and Organization, 141, pp. 188–195. doi: 10.1016/j.jebo.2017.07.001.Google Scholar
Hendrickson, J. R., Hogan, T. L. and Luther, W. J. (2016), ‘The Political Economy of Bitcoin’, Economic Inquiry, 54(2): 925–939. doi: 10.1111/ecin.12291.Google Scholar
Hodgson, G. M. (2006), ‘What are Institutions?’ Journal of Economic Issues, 15(1): 493–501. doi: 10.1080/00213624.2006.11506928.Google Scholar
Hodgson, G. M. (2015), Conceptualizing Capitalism: Institutions, Evolution, Future, Chicago: University of Chicago Press. Available at: http://books.google.co.uk/books?id=t5TICQAAQBAJ&printsec=frontcover&dq=isbn:9780226168142&hl=&cd=1&source=gbs_api.Google Scholar
Honig, D. (2018), ‘When Reporting Undermines Performance: The Costs of Politically Constrained Organizational Autonomy in Foreign Aid Implementation’, International Organization, Early view, https://doi.org/10.1017/S002081831800036XGoogle Scholar
IDRC (2017), ‘Blockchain: Unpacking the Disruptive Potential of Blockchain Technology for Human Development’, Ottawa: IDRC, available at https://www.idrc.ca/en/stories/blockchain (accessed 20 October 2018).Google Scholar
KfW (2018), Trusted Budget Expenditure (TruBudget) – Project Information, Frankfurt.Google Scholar
Khan, M. H. (1995), ‘State Failure in Weak States: A Critique of new Institutionalist Explanations’, in Harris, J., Hunter, J., and Lewis, C. W. (eds), The New Institutional Economics and Third World Development, London and New York: Routledge, pp. 71–86.Google Scholar
Kharas, H. (2007), Trends and Issues in Development Aid, Washington, DC, available at https://www.brookings.edu/wp-content/uploads/2016/06/11_development_aid_kharas.pdf (accessed 20 October 2018).Google Scholar
Knack, S. and Rahman, A. (2007), ‘Donor Fragmentation and Bureaucratic Quality in Aid Recipients’, Journal of Development Economics, 83(1): 176–197.Google Scholar
Knack, S., Rogers, F. H. and Eubank, N. (2011), ‘Aid Quality and Donor Rankings’, World Development, 39(11): 1907–1917. doi: 10.1016/j.worlddev.2011.07.028.Google Scholar
Lall, R. (2017), ‘Beyond Institutional Design: Explaining the Performance of International Organizations’, International Organization, 71(2): 245–280. doi: 10.1017/S0020818317000066.Google Scholar
Martens, B., Mummert, U., Murrell, P. and Ostrom, E. (2003), The Institutional Economics of Foreign Aid, Cambridge: Cambridge University Press. doi: 10.1016/S0304-3878(03)00041-5.Google Scholar
Martens, B. (2005), ‘Why Do Aid Agencies Exist?’ Development Policy Review, 23(6): 643–663. doi: 10.1111/j.1467-7679.2005.00306.x.Google Scholar
Mascarenhas, R. and Sandler, T. (2006), ‘Do Donors Cooperatively Fund Foreign Aid?’ Review of International Organizations, 1(4): 337–357.Google Scholar
Maskin, E. and Tirole, J. (1999), ‘Unforeseen Contingencies and Incomplete Contracts’, Review of Economic Studies, 66(1): 83–114.Google Scholar
Mastromatteo, G. and Russo, F. F. (2017), ‘Inequality and Charity’, World Development, 96: 136–144. doi: 10.1016/j.worlddev.2017.03.003.Google Scholar
McCubbins, M. D. and Schwartz, T. (1984), ‘Congressional Oversight Overlooked: Police Patrols versus Fire Alarms’, American Journal of Political Science, 28(1): 165–179.Google Scholar
de Mesquita, B. B. and Smith, A. (2009), ‘A Political Economy of Aid’, International Organization, 63(2): 309–340.Google Scholar
Milner, H. V. (2006), ‘Why Multilateralism? Foreign Aid and Domestic Principal–Agent Problems’, in Hawkins, D. G., Lake, D. A., Nielson, D. L. and Tierney, M. J. (eds), Delegation and Agency in International Organizations, Cambridge: Cambridge University Press, pp. 107–139. doi: 10.1017/CBO9780511491368.005.Google Scholar
Minoiu, C. and Reddy, S. G. (2010), ‘Development Aid and Economic Growth: A Positive Long-run Relation’, Quarterly Review of Economics and Finance, 50(1): 27–39.Google Scholar
Moe, T. M. (1984), ‘The New Economics of Organization’, American Journal of Political Science, 28(4): 739–777.Google Scholar
Molenaers, N., Dellepiane, S. and Faust, J. (2015), ‘Political Conditionality and Foreign Aid’, World Development, 75: 2–12. doi: 10.1016/j.worlddev.2015.04.001.Google Scholar
Monkam, N. F. (2012), ‘International Donor Agencies’ Incentive Structures and Foreign Aid Effectiveness’, Journal of Institutional Economics, 8(3): 399–427. doi: 10.1017/S1744137412000069.Google Scholar
Mussa, M. and Savastano, M. (2000), The Approach to Economic Stabilization, NBER Macroeconomics Annual 1999, Volume 14.Google Scholar
Nelson, P. (2018), Primer on Blockchain: How to Assess the Relevance of Distributed Ledger Technology to International Development, available at: https://www.usaid.gov/digital-development/digital-finance/blockchain-primer (accessed 20 October 2018).Google Scholar
Nielson, D. L. and Tierney, M. J. (2003), ‘Delegation to International Organizations: Agency Theory and World Bank Environmental Reform’, International Organization, 57(2): 241–276. doi: 10.1017/S0020818303572010.Google Scholar
North, D. C. (1990), Institutions, Institutional Change and Economic Performance, Cambridge University Press.Google Scholar
Nunnenkamp, P., Öhler, H. and Schwörer, T. (2013), ‘US based NGOs in International Development: Financial and Economic Determinants of Survival’, World Development, 46: 45–65. doi: 10.1016/j.worlddev.2013.01.024.Google Scholar
Olson, M. and Zeckhauser, R. (1966), ‘An Economic Theory of Alliances’, Review of Economics and Statistics, 48(3): 266–279.Google Scholar
Ostrom, E., Gibson, C. G., Shivakumar, S. and Andersson, K. P. (2002), Aid, Incentives, and Sustainability. 02/01, Sida Studies in Evaluation. 02/01. Gothenburg: Swedish International Development Cooperation Agency.Google Scholar
Pisa, M. (2018), Reassessing Expectations for Blockchain and Development, Washington, DC: Center for Global Development.Google Scholar
Reinsberg, B. (2017), ‘Trust Funds as a Lever of Influence at International Development Organizations’, Global Policy, 8(5): 85–95. doi: 10.1111/1758-5899.12464.Google Scholar
Rodrik, D. (1995), ‘Why Is There Multilateral Lending?’ NBER working paper #5160.Google Scholar
Rosendorff, B. P. and Milner, H. V. (2001), ‘The Optimal Design of International Trade Institutions: Uncertainty and Escape Clauses’, International Organization, 55(4): 829–857. Available at http://journals.cambridge.org/abstract_S0020818301441543 (accessed 20 October 2018).Google Scholar
Sandler, T. (2005), ‘Regional Public Goods and International Organizations’, Review of International Organizations, 1(1): 5–25.Google Scholar
Sklaroff, J. M. (2017), ‘Smart Contracts and the Cost of Inflexbility’, University of Pennsylvania Journal of International Law, 166: 263–303.Google Scholar
Steinwand, M. C. (2015), ‘Compete or Coordinate? Aid Fragmentation and Lead Donorship’, International Organization, 69(2): 443–472. doi: 10.1017/S0020818314000381.Google Scholar
Stone, R. W. and Steinwand, M. C. (2008), ‘The International Monetary Fund: A Review of the Recent Evidence’, Review of International Organizations, 3(2): 123–149.Google Scholar
Svensson, J. (2006), ‘The Institutional Economics of Foreign Aid’, Swedish Economic Policy Review, 13: 115–137.Google Scholar
Swan, M. (2015), Blockchain: Blueprint for a New Economy, Sebastopol, CA: O'Reilly Media. doi: 10.1017/CBO9781107415324.004.Google Scholar
Swedlund, H. J. (2017), The Development Dance: How Donors and Recipients Negotiate the Delivery of Foreign Aid, Ithaca, NY: Cornell University Press.Google Scholar
Szabo, N. (1994), ‘Smart Contracts: Building Blocks for Digital Markets’, Extropy 16, available at www.fon.hum.uva.nl/rob/Courses/InformationInSpeech/CDROM/Literature/LOTwinterschool2006/szabo.best.vwh.net/smart_contracts_2.html (accessed 31 July 2018).Google Scholar
Tallberg, J., Sommerer, T., Squatitro, T. and Lundgren, M. (2016), ‘The Performance of International Organizations: A Policy Output Approach’, Journal of European Public Policy, 23(7): 1077–1096. doi: 10.1080/13501763.2016.1162834.Google Scholar
Truby, J. (2018), ‘Decarbonizing Bitcoin: Law and Policy Choices for Reducing the Energy Consumption of Blockchain Technologies and Digital Currencies’, Energy Research & Social Science, 44: 399–400. doi: 10.1016/j.erss.2018.06.009.Google Scholar
Valkenburgh, P. Van (2016), Open Matters: Why Permissionless Blockchains are Essential to the Future of the Internet, available at https://coincenter.org/entry/open-matters (accessed 20 October 2018).Google Scholar
Vaubel, R. (2006), ‘Principal–Agent Problems in International Organizations’, Review of International Organizations, 1(2): 125–138.Google Scholar
Weaver, C. (2007), ‘The World's Bank and the Bank's World’, Global Governance, 13(4): 493–512. Available at: www.jstor.org/stable/27800679 (accessed 20 October 2018).Google Scholar
Wellisz, C. (2018), ‘Digital Crusaders: Technology Offers Weapons for the Battle against Corruption’, Finance and Development (40–43, available at https://www.imf.org/external/pubs/ft/fandd/2018/03/pdf/wellisz.pdf (accessed 20 October 2018).Google Scholar
Wigley, B. and Cary, N. (2017), The Future is Decentralised: Blockchains, Distributed Ledgers, and the Future of Sustainable Development, New York: United Nations Development Programme.Google Scholar
Williamson, O. E. (1979), ‘Transaction-cost Economics: The Governance of Contractual Relations’, Journal of Law and Economics, 22(2): 233–261. doi: 10.1086/466942.Google Scholar
Wright, A. and de Filippi, P. (2015), Decentralized Blockchain Technology and the Rise of Lex Cryptographia, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2580664 (accessed 30 July 2018).Google Scholar