The Center for Global Development has a relatively new policy brief on results-based programs and corruption. CGD Fellows Charles Kenny and William Savedoff argue that results-based programs — such as Cash-on-Delivery Aid or Program-for-Results Financing — can reduce the real costs of corruption in development. Drawing on Olken (2005) they note that the costs of corruption in the form of diverted funds are often less than failure costs of corruption. The traditional approach to corruption control relies on extensive monitoring of input costs in order to prevent corruption in the form of diverted funds. They claim that these monitoring costs are high — although the evidence they present is weak — and claim that results-based programs are also more efficient than the traditional approach input-monitoring approach. Here’s their summary:
Why don’t foreign aid programs simply pay recipients for attaining agreed- upon results? The idea has been around for decades, but it continues to meet resistance. Some donors worry that programs that pay for outputs or outcomes would not be able to control how funds are used and would thus be vulnerable to corruption. This brief explains why results-based payment systems are actually likely to be less vulnerable to corruption than traditional input-tracking approaches by making the effects of corruption—the failure of programs to deliver results—more visible.
I’m not convinced for three main reasons. Perhaps I read it too quickly, but first it’s not clear to me how the results-based approach reduces failure costs without tackling diverted funds. The costs of failure (because of corruption) are incurred because of diverted funds. Second, if the results-based approach does implicitly tackle failure costs, then critical to the model is setting a price per unit of progress on an outcome variable that does not include corruption. If the payment is too high then the program may still achieve results — a good thing — but it couldn’t claim to achieve this because of a reduction in corruption. Third, I’m not convinced that the data needs of the results-based program are less onerous than the traditional approach if the objective is to reduce corruption. It would require detailed cost analysis to identify and set the corruption-free price, as noted above, as well as detailed analysis of outcomes that would enable one to discern failure costs. It is also worth noting, although this is not directly related to this brief, that I remain sceptical about the political and career incentives of both bilateral as well as multilateral development agencies to set and enforce progressive outcomes.
Follow this link for the brief: Results-Based Payments Reduce the Real Costs of Corruption in Foreign Aid