Allocation of Adaptation Aid: A Normative Theory

Abstract The paper derives an efficient allocation rule of adaptation aid from a donor to the recipient nations, which is different from the traditional development aid literature. The design of the allocation rule takes care of the optimum reaction of the nations on receipt of the aid. It suggests that the allocation rule must take care of (i) distributional weight of the recipients on the donor’s welfare, (ii) their vulnerability to climate change, (iii) their efficiency in using the aid and (iv) their mitigation response to the aid. It discusses the way these factors can be incorporated in an implementable rule by use of the available data. The score of a nation derived from the first three factors requires an upward/downward adjustment if the adaptation aid leads to an increase/decrease of the mitigation effort of the country. A nation receiving a higher score is rewarded with higher allocation of aid. The paper suggests as a rule of thumb that the aid in the form of technical assistance requires a downward adjustment and the aid in monetary form requires an upward adjustment in the score.