With an application to primary schooling William D. Savedoff and Ayah Mahgoub World 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

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