Cash on delivery aid: changing the incentive mix 
Author : Jean-Michel Severino
Date : December 3rd, 2008
I recently came across a post by Nancy Birdsall on a new instrument promoted by the Center for Global Development, called ‘Cash on Delivery’ aid. In a way (Nancy, whose Center is a partner of ID4D, might wish to correct me if I am wrong, or complete if need be) it is conceptually close to ‘output-based aid’, except that governments rather than non-governmental actors are in charge of delivering the output, and that aid comes as a form of reward upon delivery rather than a direct payment of the costs incurred. The novel philosophy in this approach is that donors are as ‘hands-off’ as possible - leaving it up to recipient countries to find the most appropriate ways to reach given objectives. In a nutshell, under this type of program donors would commit ex ante to pay a specific amount for a specific measure of progress on a specific objective. In education, for example, donors could promise to pay 100€ or so for each additional child who completes primary school and takes a standardized competency test.
I find this concept appealing in three important ways:
- first, it is serious about ownership: by targeting a specific goal but not interfering in the policy choices, it leads governments to think through the most appropriate ways to reach this objective in their specific national context. Experience has shown that donors don’t always know best.
- second, it shifts incentives away from inputs (how much money do we give?) towards outputs (what concrete results do we achieve?), and clearly places the onus of results on governments. If pilot projects are set up, they will teach us important things about how public choices are made within governments, and to what extent they influence performance. For one thing, there is likely to be more public scrutiny and debate on the decisions made to ‘win’ the challenge - which may be a positive result in itself.
- this leads me to a third interesting dimension, which is the underlying ambition of changing the structure of the incentives. Cash on delivery works on supply-side incentives. Other initiatives (targeted at young girls in India, but also at public school students in Washington DC!) have worked on education through the demand-side, by paying children to attend and get good grades. Comparing the successes of demand-side and supply-side incentives in the field of education could teach us a lot on the determinants of progress.
Yet I also have my concerns (aside from obvious technical difficulties of finding agreed and verifiable benchmarks of ‘success’, which are important to think through but can probably be overcome):
- how will the governments attain results if aid isn’t there in the first place? This is a typical ‘chicken and egg’ problem: some countries do not have the budgetary space to ‘invest’ in the big push that would be needed to attain the objectives initially. These programmes would therefore need to be complementary to existing programs (such as the Fast Track initiative in education).
- secondly, Cash on delivery is a form of (ex-post) conditional aid. As a reward to good performers, it risks imposing a double penalty on populations whose governments are incapable of delivering. And by penalizing ‘poor performers’, it makes the implicit assumption that they are responsible for their bad results. Although this may be the case, it cannot be taken for granted. Like many good ideas, it should therefore probably be consumed moderately; we cannot hope to apply it uniformly and across the board.
In any case, this is interesting new stuff, which definitely merits to be discussed in the columns of this blog. Dear fellow blog members, guest commentators and readers, the floor is yours!
JMS
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Silvia Mancini
Date : December 29th, 2008 11:31:32
This could be a winning approach.
I also share your two concerns with regard the lack of cash to achieve the objectives and the incapacity of weak governments to delivery.
Potential solution to your two concerns are
1) The achievement of objectives can only be based on steps within a programme log frame. The first objective (not too expensive!) will be designed according to the budgetary capacity of the government. Once the first small objective is achieved government gets the cash back plus a reward which could range from a small grant (from any IFIs) to a facilitated access to financial markets. These additional incentives would support the achievement of further objectives already planned in the programme log frame.
2) The mutual accountability framework (http://www.oecd.org/dataoecd/36/53/40459701.pdf) could be an answer. However in the context of the mapping of accountability framework for donor and partners performance, great importance has to be given to the high quality regular monitoring of the government performance. I suggest the latter would be the responsibility of a third party, most likely a private organization, which would provide an on going counselling on results achievements and evaluation of results.
The costs of the third party would initially be charged to the donor community.
Phillip Huggan
Date : December 8th, 2008 09:21:27
This approach has much potential. It has been used in Mexico in some application, food programmes for families that send their kids to school, or something like that. In the USA, there is a doctor paying obese patients a dollar for each pound of weight lost. It works. For the latter I guess the reward is psychological. Winning a prize is fun no matter the actual value. For the developing world the “prize” is much more tacit: basic human goods.
In the USA somewhere, high school students are giving $50 for earning a high grade.
This approach is capitalism at its best given funding. I’d think philanthropists would jump on board if they knew it was effective aid, because it allows one to cherry pick recipients and applications.
Che Thuy Nhu
Date : December 7th, 2008 10:39:15
Dear readers,
In the global financial crisis, Cash on delivery aid: changing the incentive mix is a necessary problem that will be discussed on BLOG.
In Vietnam we have 2 ways to use money
1 – The donors let Vietnamese PMU team spend money and collect bills (Cash in hand). PMU have to answer for expenditure before the Donors and the law inside and outside of Vietnam. This way often happens with budget from Vietnamese government. In TA project and ODA.
2- The donors, base on the agreement, send money directly to working teams .The Vietna mese team carry the independent monitoring and registries the progress. The donors answer for directly payment. In LOAN and other projects.
Some time 2 ways are using in one project: part by donors, part by PMU Vietnmese.
I think, in this new post Mr Severino give example in education, it is the only concrete case
The question about Cash on delivery aid: changing the incentive mix need to be discussed in other projects.
In Forum http://edu.net.vn of MOET Vietnam I suggest an idea to help the pupils in poor area. The poor families can’t pay for fee in school. So why the drop–out rate is high? When I was in Kunminh ( China ), they had an experimentation: Principal of school established the list of poor pupils, that can’t pay for cost fee. The need is about 50 USD for 1 child/1 school a year. For example: In Vietnam it is about 1 USD/1month x 9 months for class 6 + other needs (I am still collecting concrect) but I think this can’t be higher than in China.
The support should be send directly to account of School as payment for education. Parent give food for children. Principals have to answer for the effectiveness and send the results of pupils to donors ( Vietnamese and other form abroad ) at the end of the years (By Email – Internet will be in all schools in Vietnam in future or use the Internet of the Cultural–Post office in the commune). The report is also send to Provincial and Ministerial levels by E- Government (one click). Principals answer for correct of request. If something goes wrong he or she have to payback from his or her salary. One child receive only 1 support.
Delete all other Funds for cost fee in schools. Small sum of money will ensures one child to pass 1 class, ensure teachers to receive payment for their work, reduce the drop–out rate in remote area.
I think with Internet the fund can be go directly to Schools,with no need through other channels, other local funds.
Thank you