A Problem of Principals: Common Agency and Social Lending at the Multilateral Development Banks.

Multilateral development banks (MDBs) dramatically increased social lendingfor health, education and safety nets after 1985. Yet the social policyinterests of the great powers * especially the hegemonic United States *remained relatively static from 1980 to 1999. Why does MDB lending divergeso dramatically from member-state preferences? We argue that this puzzlederives from the fact that conventional principal-agent models of MDBs aremisspecified both in the set of states considered as principals and in thenature of the contract between states and the MDBs. We argue that MDB's arebest conceived as agents of a "collective" principal, where members of thecollective must coordinate as they direct the agent. We also contend thatin highly institutionalized IO settings such as MDB's, analysts shouldconsider the interests of all members * even those with minimal power * inorder to understand the likely voting coalitions that will form and delegateto the agent. We evaluate our model of a collective principal and theconventional alternatives through statistical tests employed on a dataset ofmore than 6,000 loans issued by the major multilateral development banksfrom 1980 to 1999. In comparison to conventional alternatives, we find thatwhen we more accurately specify the principal delegating to MDB's ascollective, and include all member states, lending outcomes track principalpreferences closely. ..PAT.-Conference Proceeding [ABSTRACT FROM AUTHOR]