This article uses the example of European budget support to show the differences in applying principal–agent and collective action analysis to the donor–recipient relationship and the incentives of European donors. Our results show that the Paris Declaration, while formulating the ‘right’ principles, carries a number of assumptions regarding the (cap)ability of donors to act collectively. This assumption, however, fails to include the political economy of European donors and their own political, institutional and individual incentives that undermined this capability substantially. In other words, the domestic political costs and incentives for European donors to implement the Paris agenda, and in particular aid modalities such as budget support, were not given enough consideration when the aid effectiveness agenda was formulated.
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