With an application to primary schooling

William D. Savedoff and Ayah MahgoubWorld Bank - Washington, D.C. - June 14, 2010

Cash on Delivery: A new approach to foreign aid

Thought Experiment

• How does the Bank buy laptops?• Can we buy “educated children” or

“reduced maternal mortality” the same way?

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)

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

Hands-On Approach

Identification

Design

Negotiation

Approval

Startup

Implementation

Tech. Assist.

M & E

Final “Evaluation”

Outcome Measurement?

$

Traditional Aid

funder engaged in

almost every phase

Hands-Off Approach

Identification

Design

Negotiation

Approval

Startup

Implementation

Tech. Assist.

M & E

Final “Evaluation”

Outcome Measurement?

Traditional Aid

funder engaged in

almost every phase

$

COD Aid

Agree measure of progress

Validate outcomes

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

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?

• Predictable funding• Policy freedom• Institution building• More money• Lower transaction costs• Accountability

Possible benefits of COD

Developing countries• Demonstrable results• Innovation & diversity• Long-term change• Money where it works• Lower transaction costs• Accountability

Donors

• Donors renege• Start up costs• No progress no money• Perverse incentives• Opportunity cost

Possible drawbacks

Developing countries• Difficult countries • Bureaucratic resistance• Measurement & cheating• Unintended consequences• Cherry picking

Donors

• Donors renege• Start up costs• No progress no money• Perverse incentives• Opportunity cost

Possible drawbacks

Developing countries• Difficult countries • Bureaucratic resistance• Measurement & cheating• Unintended consequences• Cherry picking

Donors

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

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

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