Bailout

Cash on Delivery Aid

By Felix Salmon

I like Nancy Birdsall’s idea of “Cash on Delivery Aid” a lot. Instead of spending money on building schools or hiring teachers or any other means towards an educational end, just pay for outputs instead:

We propose that donors offer to pay recipient governments a fixed amount for each additional unit of progress toward a commonly agreed goal, e.g. US$200 for each additional child who takes a standardized test at the end of primary school. That is, the donors pay ?cash? only upon ?delivery? of the agreed outcome. The key features of this proposal are: (1) the donor pays only for outcomes, not for inputs, (2) the recipient has full responsibility for and discretion in using funds, (3) the outcome measure is verified by an independent agent, (4) the contract, outcomes and other information must be disseminated publicly to assure transparency, and (5) this approach is complementary to other aid programs.

If a prize-based approach is a good idea for things like vaccines, why can’t it work with education, and other areas with clearly-definable and measurable outputs?

To spur government action and allow for civil society to participate in bringing about change, each COD Aid contract (as designed) would rely on a single, measurable goal; e.g. children completing primary school or households with access to clean water. Choosing an indicator that is simple, central to people?s lives, and easily auditable, Nancy says, is critical to the success of a COD Aid model.

The problem with this model is I think at the donor end: the government can spend the money on anything it likes, from kickbacks to Kalashnikovs, and people — and even governments — donating money for early-childhood education or clean water don’t like risking their money being spent elsewhere. But Nancy has a 100-page book coming out on the subject; maybe that might help to change some minds.

Full post as published by Macroprudential on February 18, 2010 (boomark / email).