1 Governance in Decentralized Development Aid Programs Jean-Philippe Platteau and Frédéric Gaspart 1 Centre for Research on the Economics of Development (CRED) Faculty of Economics Rempart de la Vierge, 8 B-5000 Namur Belgium Email address of the contact person: jean-philippe.platteau@fundp.ac.be (Fax: 32-81-724840) Abstract: Largely as a response to critiques of top-down development and of a growing awareness of the low effectiveness of aid absorption in poor countries, the international donor community has recently adopted with enthusiasm and determination a new approach to fight poverty, called the community-based development approach (CBD). Such an abrupt shift in aid strategies is questionable, not because the approach is wrong (the opposite is actually the case), but because massive injections of aid funds in CBD projects, the entry into the field of numerous agencies with little or no experience in participatory development, as well as the pressing need for quick and visible results, threaten to undermine its effectiveness in reducing poverty. The cause for worry comes from the ‘elite capture’ problem that risks deflecting a large portion of the resources devoted to CBD into the hands of powerful groups dominating target communities. On the basis of a game-theoretical model, the main aim of the paper is to discuss the use of sequential and conditional disbursement procedures as a way of surmounting such a problem, and to examine how the share of CBD aid reaching the poor is influenced by various elements of the aid environment, including the pressure of competition among donor agencies and the availability of aid funds. Multilateral reputation mechanisms and intra-community competition for leadership are also assessed as possible alternatives to sequential disbursement procedures. Keywords: participatory development, conditional transfers, elite capture, aid effectiveness June 2004 1 Our gratitude goes to all those who made useful remarks and suggestions in the course of seminar presentations of this paper, in particular, to François Bourguignon, Louis Hotte, Marcel Fafchamps, Dirk Van de Gaer, and Jan Gunning.