Cash on Delivery: A new approach to foreign aid

1. With an application to primary schoolingWilliam D. Savedoff and Ayah MahgoubWorld Bank - Washington, D.C. - June 14, 2010 Cash on Delivery: A new approach to foreign aid

2. Thought Experiment • How does the Bank buy laptops? • Can we buy “educated children” or “reduced maternal mortality” the same way?

3. If everyone wants results, why not pay for them? Sometimes we do … • Global Alliance for Vaccines Initiative • European Union Variable Tranches • SWAps and Budget Support • Output-Based Aid (GPOBA)

4. Key features of COD Aid • Payment for outcomes, not inputs • Hands-off funders, responsible recipients • Independent verification • Transparency through public dissemination • Complementarity with other aid programs

5. Traditional Aid Identification DesignNegotiationApprovalStartupImplementation Tech. Assist. M & E Final “Evaluation” Outcome Measurement? funder engaged in almost every phase $ Hands-On Approach

6. Traditional Aid Identification DesignNegotiationApprovalStartupImplementation Tech. Assist. M & E Final “Evaluation” Outcome Measurement? funder engaged in almost every phase Hands-Off Approach COD Aid Agree measure of progress $ Validate outcomes

7. Great in theory, but in practice? COD Aid for primary schooling • Shared goal: universal completion of quality primary education • Unit of progress: “assessed completer” – a student enrolled in the last year of primary school who takes an approved standardized test • Payment: funder pays $200 per assessed completer beyond base year enrollment • Transparency: recipient publishes enrollment figures, assessed completers and test scores; funder contracts an agent to conduct retests in a random sample of schools

8. Questions for applying COD Aid to other sectors • Can funders and recipients agree on a shared objective? • What is the correct way of defining the outcome? • Is there a reasonably precise and relevant indicator that measures progress for that outcome? • Can it be verified independently? • What payment size would provide a reasonable incentive and minimal unintended consequences? • What incentives might choosing such an indicator create, both positive and negative? • Can modifications be introduced to mitigate any problems, without introducing significant complexity or difficulties? • When and how will COD Aid payments end?

9. Possible benefits of COD Developing countries Donors • Predictable funding • Policy freedom • Institution building • More money • Lower transaction costs • Accountability • Demonstrable results • Innovation & diversity • Long-term change • Money where it works • Lower transaction costs • Accountability

10. Possible drawbacks Developing countries Donors • Donors renege • Start up costs • No progress no money • Perverse incentives • Opportunity cost • Difficult countries • Bureaucratic resistance • Measurement & cheating • Unintended consequences • Cherry picking

11. Possible drawbacks Developing countries Donors • Donors renege • Start up costs • No progress no money • Perverse incentives • Opportunity cost • Difficult countries • Bureaucratic resistance • Measurement & cheating • Unintended consequences • Cherry picking

12. Current status of COD Aid discussions • Written requests from Liberia & Malawi • Cabinet-level requests from Tanzania & Ethiopia • New UK government commitment to pilot COD Aid • African Development Bank considering application to education and water • G-8 considering maternal mortality

13. Practical ideas to try COD Aid • A global contract offered by WB/FTI • AfDB or WB could create Trust Fund for education, health or water • Bilateral agency or private foundation could convene a pooled fund • WB could negotiate buydowns for loans based on outcomes

14. Thank you for your interest! To learn more: • Visit the COD Aid page on our website at www.cgdev.org/section/initiatives/ • Sign up for the monthly email update on the COD Aid webpage • Email wsavedoff@cgdev.org or rperakis@cgdev.org