We develop a theoretical model in which NGOs financed by foreign donors engage in two types of activities in a developing country: service provision and advocacy. In the model, service provision relieves poverty, but these aid resources risk embezzlement by corrupt authorities. Advocacy can encourage the local population to demand more transparency to the authorities, reducing embezzlement at the cost of investing fewer efforts in direct poverty alleviation. We find that in general advocacy will be under-provided because its benefit, improved governance, has the characteristics of a public good. NGOs can remedy to this under-provision by coordinating their actions, but because this coordination threatens the rents of the local authorities, officials will respond to coordination attempts by cracking down on NGOs. Full coordination is therefore un-desirable: crack down of NGOs will be too strong, which reduces service provision and hurts beneficiaries.
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