In what circumstances should foreign aid be given to less developed countries with repressive rulers? Repressive rulers are assumed to control the national income and to trade it against the probability of staying in office which is assumed in turn to depend positively on popular wealth and repression. A foreign donor aware of this process of optimization will pursue his international objectives by attaching conditions to his aid that alter the relative price of repression and popular wealth in the calculations of the tyrant. The effectiveness of direct and in-kind aid and the desirability of a
carrot an stick
aid policy depend on the direct and the interactive effects that popular wealth, repression, and the parameters of economic growth exert on the regime's stability and its level of income.
The bulk of this paper in its present form was written during my stay in Clermont-Ferrand in the Spring of 1990 and I thank the Economics Department of the Universite the Clermont-Ferrand for its kind help. I thank Hugo Juan-Ramon, John Matsusaka, and Vimolsiri Parametee for their kind help, and I am grateful to participants in workshops at the European Public Choice Society Meetings in Meersburg, the Western Economic Association Meetings in San Diego, Carleton University, Universite de Clermont-Ferrand, the Universite de Montreal, and the University of Western Ontario.