We analyze allocation of foreign aid to different sectors in a recipient developing country. Donors tend to favor social sectors over other public expenditure programs. Due to incomplete information the donors may concentrate too much on the priority sectors leaving the lower priority, yet...

The author analyzes the allocation of foreign aid to various sectors in a recipient developing country. Donors tend to favor social sectors over other public expenditure programs. Due to incomplete information, donors may concentrate too much on priority sectors, leaving lower-priority yet...