The samaritan's dilemma and the effectiveness of development aid

Contributing to the alleviation of poverty in recipient countries is one of the main goals of most aid organizations. In this paper the following ques tion is asked: could it be the case that altruistic aid organizations are c ounter-productive in the sense that their activities may cause the extent o f poverty to increase or the relative income distribution to worsen? The an swer is yes and the reason is simply that recipient governments adjust in o rder to qualify for aid. It is shown that if recipient governments perceive themselves as being engaged in a competition for aid and/or if the aggrega te aid budget is endogenous, then the incentive problems may become particu larly severe.