Counter-Productive Incentives Schemes in European and International Politics (CPI-EIP)
Over the past six decades, conditionality policies (i.e. the granting of assistance in exchange for policy reforms) have become widespread. The International Monetary Fund, the World Bank, the government of the United States, the European Union, and even many regional powers use them. Yet, conditionality policies do not always work. Sometimes, they turn out to be effective and efficient, and target governments end up implementing and maintaining the reforms required by the donor organization(s). Othertimes, however, conditionality
policies fail, and target governments end up not implementing the policies agreed with their donors, or even undoing even those reforms which they had themselves undertaken. This project seeks to explain that variation -- why, that is, do conditionality policies sometimes work and other times not? This ground-breaking project seeks to answer that question by both refining our theoretical tools to deal with international incentives schemes and by producing world-class empirical research on this topical matter. On the theoretical side, we build on, and seek to further refine, our recent work [Karagiannis, Y. and N. Konstantinidis (2015), 'On the conditional success of international conditionality policies (with evidence from Greece and Spain during the Eurozone crisis.' GLOBAL POLICY doi: 10.1111/1758-5899.12198]. We thus conceptualize international conditionality policies as extrinsic incentives schemes, and we seek to discover their potentially destructive effects on target governments' intrinsic motivation to reform. This allows us to place ourselves within a rationalistic principal-agent framework, where the (relatively informed) international donor organization is the principal, and the (relatively uninformed) target government is the agent. Using the technology of Bayesian signaling games, we derive conditions under which conditionality policies may or may not succeed. What is urgently needed now is to (a) work through additional extentions of the baseline model to derive all possible conditions, and (b) analyze the relationship between our theoretical technology and substantive theories of European and international politics. On the empirical side, there remains a considerable amount of work, too. Our goal is to build two detailed datasets of conditionality agreements, one for the internal politics of the European Union, and one for conditionality agreements in the realm of international politics, with a special focus on development-related agreements. In addition, we wish to conduct a number of detailed case studies, mostly in Europe and Latin America. The far-reaching results of our project will be both theoretical and policy-related. On the theoretical side, we shall gain more insights into whether international incentive schemes obey the neoclassical logic of upwards sloping supply curves -- or not! On the policy side, we shall provide specific guidance as to when conditionality policies should be applied, or not.