Ideas to Action:

Independent research for global prosperity

Cash on Delivery: A New Approach to Foreign Aid (One-Page Brief)

February 17, 2010

By Nancy Birdsall, William D. Savedoff, and Ayah Mahgoub

Summary: Accelerate progress toward universal primary education by offering a contract to low-income countries which pays a specific amount for every additional child who completes primary school without restrictions on how funds are spent.

The Problem: Despite shared interests in educating children, improving health, and reducing poverty, donors and recipients tend to repeat ineffective approaches because, in addition to these shared interests, they also have competing goals for foreign aid and lack reliable information about implementation and outcomes. Consequently, foreign aid programs are weakly accountable – to donor country citizens who finance them, to recipient country citizens who are supposed to benefit, and between donor and recipient governments as well.

Recipients regularly criticize donors for being inflexible, unresponsive, and providing unpredictable funding, while donors criticize recipients for lack of transparency and failure to fulfill obligations. These problems are exacerbated by the involvement of multiple donors with different budget cycles and reporting requirements, which dilutes the recipient’s accountability to any single donor, raises transactions costs, and increases the administrative burden.

The Proposal: 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.

The Advantages: This proposal focuses exclusively on outcomes which improves accountability; gives recipients sole responsibility and rewards for achieving progress which increases local ownership; directs attention to measuring progress rather than monitoring inputs which promotes learning by doing; increases transparency by reporting valid policy-relevant information; and can be introduced as additional to current aid flows in a particular recipient country without disruption to existing programs. Though other forms of aid achieve one or more of these features to varying degrees, this COD Aid proposal combines all five of them in a way that strongly emphasizes these features and, in the process, fulfills many of the aims stated in the Paris Declaration for improving aid effectiveness.

Implementation: The key steps to implementing COD Aid are to negotiate and sign a contract, collect and report data, arrange for independent verification of outcomes data, and effect payments in proportion to progress. In parallel, an independent evaluation of the effort is needed to assess whether COD Aid is, or is not, an improvement over other aid modalities.

CGD engaged background research and consultation with governments and private foundations to develop a model contract for COD Aid. The resulting documentation explains how COD Aid could be implemented. CGD is advising several developing country governments, official aid agencies, and private philanthropic foundations that have expressed interest in such a proposal. We welcome feedback and inquiries from interested individuals, researchers, organizations and governments.

For more information contact Rita Perakis (rperakis@cgdev.org) or go to our COD Aid initiative page.