A new wave of development programs that explicitly use incentives to achieve their aims is under way.They are part of a trend, accelerating in recent years, to disburse development assistance against specific and measurable outputs or outcomes. With a proliferation of new ideas under names such as “payments for performance,” “output-based aid,” and “results based financing,” it is easy to lose sight of basic underlying similarities in these approaches and to miss some significant differences.

This paper proposes a way of classifying and distinguishing the range of incentive programs being debated today, emphasizing two particular dimensions: the agent whose behavior the incentive seeksto change and the specificity of the output or outcome measure. It begins by characterizing a basic incentive arrangement, discussing the range of available contracts and how they appear in development programs, presents a classification of existing incentive programs and illustrates the scheme with examples. The paper concludes by identifying four broad categories that address different problemsand offers some cautionary notes.

CGD Experts

Related Topics

Rights & Permissions

You may use and disseminate CGD’s publications under these conditions.