country operations and almost 30 percent of the Bank advisory services and analytical tasks (World Bank 2013a). The sheer number of different funds is even more striking. The World Bank manages over 700 IBRD/IDA trust funds, and almost a thousand funds when adding IFC trust funds to this count. These developments have raised concerns about increased administrative burdens, unsatisfactory monitoring and supervision requirements, and the distortion of program priorities (IEG 2011). World Bank alumni refer to the rise of trust funds as one of the key problems the Bank will have to solve in the near future (Linn 2009; The 1818 Society 2012). The flexibility for sovereign donors and their increased influence on Bank activities tends to be accompanied by reduced oversight and policy coherence within the Bank (IEG 2011). Similar concerns have been voiced in the United Nations system, which relies on earmarked funding for operational activities to an even greater degree than the Bank (UN 2012; UNDP 2012).

As a consequence, the various multilateral agencies have introduced institutional reforms to restrict the growth of at least some forms of multi-bi aid, notably with respect to the numerous small single-donor trust funds. For these small funds, the balance between costs and benefits is often considered as negative if all costs (including those arising to the multilateral agency) are truly taken into account (Tortora and Steensen 2014). Hence, reforms attempt to encourage a distinction between those trust funds that actually provide an efficient way of cooperation between sovereign donors, and those that generate disproportionate transaction costs and are not aligned with the overall strategy of the multilateral agencies.

For these reforms to be successful, it is essential first to gain an understanding of why and under which conditions sovereign donors engage in the different types of trust funds. This is precisely the question we seek to answer in this paper. There is a large number of agency reports and related case studies on which we can draw (for a review of these studies, see Reinsberg, Michaelowa, and Eichenauer 2015), but, to the best of our knowledge, the question has never been empirically addressed. Generally, despite its undeniably strong relevance, multi-bi aid has so far remained widely neglected in the academic literature. By providing a systematic theoretical and econometric analysis we attempt to generalize the lessons from previous case study evidence. Analytically, our analysis is close to the existing literature on donor choices between the more established categories of bi- and multilateral aid (Milner and Tingley 2013; Schneider and Tobin 2013), but complements these studies by a focus on the neglected intermediate category of multi-bi aid. Regarding donor motivations, we can also draw from the general aid allocation literature, an active research field since the mid-1970s (early examples are Dudley and Montmarquette 1976; McKinlay and Little 1977; Maizels and Nissanke 1984; or Frey and Schneider 1986), and – albeit more indirectly – from the general literature on institutional choice and the proliferation of international organizations (e.g., Martin 1992; Abbott and Snidal 1998; Koremenos, Lipson, and Snidal 2001; Johnson 2014). We do not consider the general question whether aid is provided as bilateral, multilateral or multi-bi aid (for a game-theoretic model to examine this question, see Eichenauer and Hug 2015). Rather, we consider a fixed budget for multi-bi aid (after decisions for multilateral and bilateral aid have been taken) and examine how this budget is allocated over different types of funds.

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