Samaritan's Dilemma

The Samaritan’s dilemma occurs when giving charitable donations removes the incentive for the receiver to improve their own situation. When aid is given, the receiver initially has two options: they can use the aid to improve their situation, or they can trust that they will receive aid again and do nothing productive with the aid they receive. Good Samaritans evidently give charitable donations in hopes of the former, however we will see that this scenario does not necessarily play out in their favour (Coate 1995). The Samaritan’s dilemma often presents itself in the area of foreign aid, and there are certain measures the government can take to eliminate the uncertainty it causes. In this essay I will first discuss the significance of the

Samaritan’s dilemma in general terms, then I will apply the observations to foreign aid and finally I will describe what the government can do to prevent it from occurring.
Consider a situation where we have Country A, the giver of a charitable donation, and Country B, the receiver of the donation. Imagine that Country B has become the victim of a terrible natural disaster, and in light of this tragedy, Country A has found it within itself to donate funds to go towards first-aid initiatives and rebuilding projects. Country A trusts that Country B will use the financial aid to return to its original state before disaster struck. However, it cannot be known at the time of giving whether Country B will use this aid responsibly or not. This uncertainty that the giver faces is the first lynchpin of the Samaritan’s dilemma. The foreign aid situation above is not unlike the situation in which a well-off person considers giving a small donation to a homeless person. They will often wonder whether the homeless person will use the money to get himself out of poverty or to buy drugs, and there is no way of knowing the outcome at this point. As a result, many well-off individuals choose not to donate as they anticipate the worst, and consequently those homeless people who would have used the donation responsibly suffer. The same logic could also occur in our foreign aid example. The recipient country might have used the funds responsibly to rebuild their country, but the giving country has decided against giving a donation for fear that the funds would not have been put toward the rebuilding effort.
The above description is only a brief introduction, so it is necessary to delve a bit deeper into the implications of the Samaritan’s dilemma before we proceed. Another lynchpin of the Samaritan’s dilemma is that the receiver of a donation faces some risk of loss if they do not receive another donation when they need it, such as unanticipated medical expenses or crop failure. In the case of a poor person, the responsible thing to do would be for them to buy some sort of insurance so that when disaster strikes they are not left to resolve the damages on their own. However, we see that many poor people continuously anticipate additional donations and therefore fail to see the value in purchasing insurance when the funds will be readily available through charity in any case. Coate (1995) states that the availability of charity for the poor has been suggested as a key factor in explaining the large fraction of low-income individuals without health insurance in the US. In addition, the reluctance of individuals to purchase insurance against natural disasters has been linked to the traditional generosity of the American public toward victims of natural disasters (Coate 1995). As a consequence of the poor failing to get insured, there are adverse efficiency effects. In the case of charity, the rich, not the poor, choose how much protection to give the poor against loss. There is no reason to expect the rich to choose the level of protection that is optimal for the poor person, which is one such source of inefficiency. Coate suggests that the government should ensure that the poor obtain insurance to restore efficiency. What Coate calls the “optimal transfer policy” would involve providing “in-kind” transfers of insurance (1995). If we apply these observations to the context of foreign aid, the activities of altruistic aid organizations and charitable governments are often counter-productive because they can increase poverty and worsen income distribution. Pedersen (2001) observes that recipient governments will adjust their circumstances in order to fraudulently qualify for aid because they know that the more poverty a donor observes, the more aid it will give, which is another source of inefficiency.
Governments have a few options for alleviating the uncertainty caused by the Samaritan’s dilemma.

First we return to Coate’s optimal transfer policy involving in-kind transfers of insurance. By definition, in-kind transfers from the government are goods and services given to the poor instead of money. This system removes the possibility that the poor will abuse the charity by using it irresponsibly. Thus, this is a very effective method of eliminating the uncertainty burden on the giver. If a charitable government gives a suffering country a donation in the form of a good or service instead of a monetary transfer, the country will be forced to use the charity for its intended purpose. Another solution proposed by Coate is for the government to simply require that the country take insurance measures if it wants to receive continuing donations in the future. Presumably the recipient country would present some sort of proof of insurance and the charitable government would continue to provide donations. Coate takes this method a step further and states that the charitable government can also subsidize insurance by offering monetary transfers conditional on the country taking insurance, such as natural disaster insurance. However, the in-kind transfers remain the failsafe measure since with insurance requisite for donation policy or subsidized insurance policy the country could take the insurance but that would not necessarily stop it from using the rest of the charitable money for other less productive projects (Coate 1995). The fundamental problem with the first two measures is that there is no approach the charitable government can take to punish the recipient government without hurting the poor in the recipient country. Even if there is a contract between the giver and the receiver stating that the quality of life of the poor must increase by a certain amount in a set time, there is nothing the giver can do if the contract is broken. If the giver ceases donations,

the poor in the recipient country will continue to suffer (Pedersen 2001).
We have seen that the Samaritan’s dilemma can be applied to foreign aid and that governments have one effective option for ameliorating the disadvantages it causes. Givers of aid remain uncertain as to how their donations will be used, and receivers have a certain risk of loss by forgoing responsible use of funds. The governments of charitable countries have several options for preventing recipient countries from using the donations irresponsibly, and providing in-kind donations are one of the most effective ways of accomplishing this goal. The problem of the Samaritan’s dilemma is a very fascinating concept to investigate and the applications of it are quite vast. However, the amount of detail necessary to fully understand its implications in this context exceeds the constraints of this essay, and the issue is admittedly very complex and calls for further research.