In a recent blog, Duncan Green wonders if “Pay by Results” (PbR) programs are overhyped and questions whether foreign aid agencies and NGOs should be pursuing them at all. If PbR programs are taking off, it doesn’t seem to be for a particular form of PbR that we describe as Cash on Delivery (COD) Aid. That’s not surprising. COD requires donors to be willing to try something substantially different from conventional aid. In particular, it requires them to recognize up front that development programs don’t always achieve results in the first few years, and it takes away the illusion of progress created by adherence to pre-approved plans and implementation schedules.
Only a few countries have stepped into this new way of doing aid. The UK experimented with paying Ethiopia a small sum for each additional secondary student who completes school and takes a test. To its credit, the UK and Ethiopia stuck by the agreement even after the first-year outcomes were much lower than they had anticipated. Norway is certainly a champion of patience among donors, maintaining its commitment to Indonesia for five years now, still waiting for Indonesia to complete a number of preconditions to the performance aid package.
Much of what Duncan Green questions in PbR applies to payments to specific service providers, NGOs, communities, or households. Indeed, the Bond study that he cites is focused on paying service providers for results. But these programs differ from COD in important ways. COD pays governments, not service providers. COD pays for only one or a few broad and important measures of outcomes that the government and donor care about, such as educated children, healthier people, access to inexpensive energy, or more efficient tax administration. COD requires that the outcome indicator be regularly reported to the public.
Why do these differences matter? Because without these features, PbR programs tend to create “deliverables” defined by donors, to be delivered on a preset schedule, which invites creation of “plans” and “result chains” and fixed implementation schedules. That, in turn, diverts donor attention from outcomes to inputs, indulging donor impatience and discouraging the kinds of local initiative and innovation (e.g., Problem-Driven Iterative Adaptation) that are ultimately the best guarantee of sustained progress.
Debates over something as abstract and generalized as PbR will continue to be fruitless unless people make clear distinctions about who is being paid, for what, and how. Performance agreements for a consultant writing reports, a health clinic caring for infectious disease, or an energy firm delivering electricity differ from each other, and differ from performance agreements with governments. PbR of the COD Aid type — paying governments in proportion to outcomes as COD Aid proposes — is still largely unexplored.
PbR may be overhyped at the same time that at least one type of PbR is underutilized.