Is Cheap Aid Money for Participatory Development Desirable for the Poor?

Nowadays, much hope is placed on the prospects of rapid poverty reduction through massive increases of aid resources accompanied by more decentralised or participatory approaches to development. There is a sort of implicit belief that the extent of poverty alleviation can be roughly commensurate to the absolute amount of aid money available. When local-level elite capture is taken seriously, however, things do not appear so simple. With the help of a three-agent game-theoretical model, and assuming that aid agencies act as local monopolists using conditional transfers to discipline local leaders or intermediaries, we show that a lower cost of access to aid money has the effect of diminishing the share accruing to the poor. Moreover, it does not necessarily lead to poverty alleviation understood as reduction of absolute poverty rather than relative deprivation.