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Cash on Delivery is an approach to foreign aid that focuses on results, encourages innovation, and strengthens government accountability to citizens rather than donors. Under COD Aid, donors would pay for measurable and verifiable progress on specific outcomes, such as $100 dollars for every child above baseline expectations who completes primary school and takes a test. CGD is working with technical experts and potential donors and partner countries to design COD Aid pilots and research programs.
Cash on Delivery Aid is designed to overcome the problems of traditional aid, which often focuses more on disbursements and verifying expenditures than on results, undermines a government’s accountability to its citizens, and undervalues local experimentation and learning. COD Aid’s advantage is in linking payments directly to a single specific outcome, allowing the recipient to reach the outcome however it sees fit, and assuring that progress is transparent and visible to the recipient’s own citizens. These features rebalance accountability, reduce transaction costs, and encourage innovation.
COD Aid can be applied to any sector in which donors and recipients can agree upon measurable, verifiable outcomes and commit to making progress toward those shared goals. The approach is fully explained in Cash on Delivery: A New Approach to Foreign Aid (CGD, 2010). Listen to more about COD Aid in these Wonkcasts. Explore the links to the right for more information on specific sectors and countries.
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Over the last five years, our newsletter “Cash on Delivery Aid Update” has begun to cover more than just Cash on Delivery Aid(COD Aid). So we’ve decided to rename the newsletter, but what shall we call it?
I discussed this simple question with colleagues at the Center, where it quickly turned into a strange journey through the language – and substance – of performance payments. In particular, what is being delivered? And is the cash always aid?
But our newsletter also considered other aid programs that looked similar because they paid for a “result” of some kind. A partial list might look like an odd alphabet song – RBF and RBA; PBI and OBA; DIB and SIB; PforR and P4P – but they do share a common focus on paying for results. (If someone would like to compose a melody, the rhyming couplets are intentional).
The odd thing is that people designing these programs define “results” in very strange ways. Some of these programs pay for writing a plan, instituting a new procedure, or delivering supplies. This is far from the results we envision for COD Aid agreements – results like children who know how to read and write, fewer deaths from preventable illnesses, or lower greenhouse gas emissions from deforestation. It also differs from the common understanding of results; after all, one dictionary synonym for results is “effect.” In practice, performance agreements tend to pay more often for things which are thought to be causes than for verified effects. I think that’s a problem. Others don’t. Subject matter for more debate.
Is the Cash Always Aid?
Over time, we also noticed that some of the programs we wrote about in our Update aren’t really foreign aid at all. In particular, Norway’s agreements with Brazil, Guyana, and Indonesia pay to reduce greenhouse gas emissions from deforestation. These aren’t charity or redistributive programs in any sense. They are payments that compensate tropical forest countries for an important service – slowing the pace of climate change – that benefits rich countries. Other programs we’ve written about, like Social Impact Bonds for reduced recidivism or fiscal transfers for health, have nothing to do with aid and everything to do with improving domestic public policy. It is pretty clear that this newsletter is not about aid and that aid is too narrow a window.
Cash on Delivery without the Aid?
So I came away from these conversations with a desire to be specific about paying for “effects” and to stress the responsibility of funders to pay what they owe for public goods, externalities, distributional justice, and cost-savings. Yet somehow “The Paying for Effects which are Public Goods, Externalities, Matters of Distributional Justice, or Cost-Saving Update” just didn’t have the right ring to it. Don’t you agree?
I might just rename it: “The Cash on Delivery Update.” That would leave open the debate over what is being delivered and get rid of the narrow focus on aid.
While global development is about much more than aid, US foreign assistance is, and will remain, one of the most visible tools for US development policy in many countries. The US government spends less than 1 percent of its annual budget — about $23 billion — on nonmilitary foreign assistance across the globe. These programs have consistently come under fire for failing to achieve measurable and sustainable results, ignoring local priorities and contexts, perpetuating bureaucratic inefficiencies and inflexibility, and repeating mistakes over time. A paradigm shift within US aid agencies is needed. In this brief, we outline concrete proposals that would address many of the traditional shortcomings of US foreign aid approaches.
And the award for burying the lede goes to MCC CEO Dana Hyde. At an event hosted by Brookings and CGD Friday about MCC’s future, Hyde quietly acknowledged that the MCC is “actively engaged in pursuing” the possibility of Cash-on-Delivery Aid programs in its compacts. This is hugely exciting news—for MCC, as well as the rest of the US aid architecture. Paying for outcomes (not inputs) means a focus on concrete development results, as well as mutual accountability and transparency.
Here is Hyde in response to a question on the reference to pay-for-success in her remarks at CGD:
MCC’s model is ripe for experimenting with pay-for-success financing, such as COD Aid and Development Impact Bonds. As Hyde recognized in her remarks, pay-for-success mechanisms like COD Aid are ideally placed to address MCC’s model of supporting development: “the two key core elements of MCC’s model – a bedrock commitment to country ownership and accountability for results focus – lend themselves very well to a pay for results approach.”
Congratulations to MCC for continuing to lead on innovation.
In the world of international aid, performance payments are a hot topic. But when it comes to signing performance payment agreements, most funders have been reticent. One of the reasons is a fear of “Double Counting” – paying once for investments to achieve outcomes and a second time when the outcomes are delivered. This concern ignores the complexity of achieving development goals and the intangible assets invested by recipient countries. When funders do agree to performance agreements, they end up ignoring the burden on recipients of “Double Demanding” – disbursing when outcomes are achieved and then setting restrictions on the use of those funds. All this confusion gets in the way of designing effective aid programs.
“I’d rather pay twice and get the result I’m after than pay once and get nothing”
That was my reply at a conference in Oslo when asked whether performance payments lead funders to end up paying twice for an outcome – once for the technical assistance and investments and a second time when the outcomes are achieved. While I stand by that answer, I also recognize that it is an unsatisfying answer to people who believe you actually can pay once and get something.
But those who think you can pay once and get something are only thinking about small projects with relatively simple (not complex) solutions. Most performance agreements to governments are aimed at complex problems which require much more than Technical Assistance (TA) and investments that fit in a Gantt Chart. They also require the recipients to apply a lot of political, managerial and financial inputs of their own in ways that are not recognized by most project designs except as “risks” to be managed. The funder’s payments for achieving outcomes should be based on the funder’s own willingness to pay for the outcome and is better conceived as a bonus to solve political and managerial problems than something that reimburses technical assistance and investments.
Essentially Funders need to be more humble about the contribution of their investments of time and money, recognizing that the recipient country brings a lot of intangible assets to the solution. And funders need to be bolder at asserting how much they value the actual deliverable – which includes not disbursing the performance payment when there’s no performance.
So much for Double Counting. But what about Double Demanding?
Though Double Counting is a false concern, Double Demanding by funders is a real one. The new crop of performance programs which pay governments for improved outcomes should liberate funders and recipients alike from the transaction costs and design rigidities that arise when you insist on tracking exactly how money is spent.
The irony is that funders who are innovating by paying for outcomes frequently undermine this advantage by requiring that recipients track how the performance disbursements are used. Essentially they are demanding the recipient work twice as hard for each Dollar, Euro, or Pound – a Double Demand. It doesn’t look like Double Demanding because funders are so habituated to tracking the uses of funds. But performance payments are ex post, and the demand to track uses of performance payments after the outcome is achieved ignores the upfront political, managerial and financial resources that the recipient had to apply in order to deliver the outcomes.
In practice, most performance agreements that we’ve analyzed have tried to make the second demand – tracking disbursements – less onerous. DFID and the IDB achieved this in their programs by treating performance payments like sector budget support – still restricted but easier to justify and report. Norway’s agreement with Brazil for emissions reductions contributes to a fund established by the Brazilians themselves which is dedicated to rain forest projects – tied but at least tied in a form that is governed and managed by the recipient. By contrast, the Norwegian agreement with Guyana faltered in part because the institutions they needed to control and manage the use of funds were unable to satisfy typical overseas development aid restrictions. Arguably, those restrictions shouldn’t have been applied because they are Double Demanding.
Performance programs are not the solution to everything but funders will never do enough of them if they worry about problems that aren’t real – like Double Counting. Once they get past such hurdles, the performance agreements need to be designed to pay on the basis of the funder’s willingness to pay and without restrictions on the uses of funds – otherwise they’re Double Demanding.
All the hype (and criticism) over foreign aid programs that pay for results got us wondering: how are these programs being implemented and are they effective? In our new paper “Does Results-Based Aid Change Anything?” we looked at a subset of performance programs that pay governments in proportion to changes in development outcomes to see what motivates the use of these approaches and how they work in practice. Instead of a revolution in aid, we found a cautious adaptation of traditional program approaches.
We found very few programs that actually pay governments for outcomes
And when they do, these programs don’t work because governments want the money — they work by getting politicians and bureaucrats to pay attention to results.
Our starting point was that it’s not all that useful to treat all types of performance-based programs as if they are trying to accomplish the same thing. The nature of governments differs from other categories of recipients in terms of resources, behaviors, and dynamics; and the responsibilities of funders and recipients change dramatically when payments are linked to outcomes rather than to completing activities or outputs.
So when we started this work in August 2013, we looked at the full universe of performance-based aid programs to identify case studies. We found many programs that pay businesses, NGOs, households, communities, and individuals for activities and outputs, but we could only identify six aid programs that paid governments for outcomes. Three of them were Norwegian programs to reduce deforestation, of which we chose to include Brazil’s Amazon Fund because it was the first and best documented. We included all three of the other programs — Gavi's Immunization Services Support (ISS) multicountry program, a secondary education program in Ethiopia financed by the UK Department for International Development (DFID), and a regional health program called Salud Mesoamérica 2015 administered by the Inter-American Development Bank (IDB). Since that time, DFID, the World Bank, and Gavi have initiated other programs that might satisfy these criteria.
Most of the programs seem effective, but not necessarily for the reasons that are commonly put forward
Each of the programs has achieved some success. Brazil’s deforestation rate has declined, more children are immunized, more students are completing Ethiopian secondary schools. However, the reasons for success had little to do with governments responding to incentives in the sense of changing their behavior in order to get money. In reviewing these cases, we came to distinguish at least four theories for how these programs are supposed to work:
Pecuniary interests. Countries will change their priorities because they need the money promised by the RBA agreement.
Attention. Politicians and bureaucrats have limited time and attention. Because funds are linked to outcomes, politicians and bureaucrats will pay more attention to results and manage things differently than they would otherwise.
Accountability. RBA agreements make outcomes visible to citizens in funding and receiving countries, allowing them to hold their governments accountable for performance.
Recipient discretion. By linking payments to outcomes rather than inputs, funders give recipients wider latitude to design and implement strategies of their own making. Using this discretion is more compatible with responding to local knowledge, building local capacity, innovating, and adapting.
Most of the cases we studied promised too little money to motivate change through pecuniary interests, lacked the transparency necessary to generate accountability to constituents, and involved funders too much in program design to be testing the effectiveness of recipient discretion. Rather, payments for outcomes seemed to increase the salience of results to people implementing programs — among staff in the funding and recipient agencies — making increased attention to outcomes the key mechanism for change. The one exception was the Amazon Fund where Brazil had full discretion over its domestic policies for reducing deforestation and where transparency has played a role in the domestic politics behind those efforts.
Few of the big concerns that are commonly raised about RBA have come to pass
Though we only had a small number of cases, none of them displayed the kinds of problems typically raised by critics. In particular, none of the agreements have been the subject of accusations regarding corruption and none appear to have distorted public allocation decisions, sacrificed long-term goals in the pursuit of short-term gains, or entailed costly verification and monitoring.
RBA is a work in progress and COD Aid is largely untested
A large part of our interest in studying these cases was to learn whether programs with features related to our proposal for Cash on Delivery Aid (COD Aid) are showing success. What we found instead was that — with the exception of Norway’s performance agreements to reduce deforestation — very few funders are paying governments to achieve outcomes and, when they do, recipients still do not operate with full autonomy, and performance information is rarely communicated to the public in ways that could increase accountability.
RBA does make results more visible to politicians and project implementers and this may be marginally better than traditional approaches that pay for inputs. However, the potentially transformative aspects of RBA that could come from greater recipient discretion and increased accountability to citizens have not been tested. Recipient countries need to demand, and funders need to offer, RBA programs that are more hands off and transparent if they are going to transform aid in these ways.