Is C.O.D. aid a new idea?

In a post last month I talked about Cash on Delivery aid, a new modality being promoted by the Centre for Global Development and recently endorsed by the Tories. A reader quickly pointed out that GAVI has been using this type of aid for quite some time now.

Duncan Green, who initially brought my attention to the Green Paper, has dug up some information on the European Commission’s Millennium Contracts program, which is similar conceptually to Cash on Delivery, except more general:

In May 2008, the European Commission (that’s Europe’s official machinery, as opposed to its national governments) introduced ‘MDG contracts’. These link at least 15% of the EC’s direct budget support (i.e. money that goes straight to governments, rather than to specific projects or ministries) to performance in achieving the Millennium Development Goals. Not only that, but they’re doing it at scale – the EC is the world’s biggest multilateral aid donor (bigger than the World Bank), and a third of all its aid is in the form of budget support – tens of billions of $ a year.

Read the rest of the post here. I’m not entirely convinced that the MGD contracts are in the same basket – although they both fall into the murky world of sticks and carrots. Neither, apparently, are the folks at CGD, who quickly replied to Green’s post. Their reply makes sense, although part of it leapt out at me as being a bit dodgy, during the discussion about the positives behind COD:

…the potential for one or more donors, private as well as public, to offer exactly the same contract to one or more developing countries.

Eep! The folks at CGD might want to have a healthy read through Avinash Dixit’s review of incentive problems in the public sector – incentives are much more difficult to dole out when we have multiple principals all trying to offer contracts to the same agent.

Update: In the comments section Ayah Mahgoub from the CGD points out that the idea is to have multiple donors invest in the same contract (not multiple contracts through multiple donors), which makes much more sense! Also the CGD has already carefully looked into the GAVI case here.

2 thoughts on “Is C.O.D. aid a new idea?

  1. Ayah Mahgoub

    August 13, 2009 at 9:43pm

    Hi Matt,

    Thank you for sharing your insights on COD Aid. I’d like to make one point of clarification in response to the last comment you made in this post. In the excerpt you included above referring to the possibility of multiple donors offering COD Aid in a country, we mean to say that multiple donors can pool their funds to offer one contract to a government.

    Also, readers interested in reading more about similarities between COD Aid and the type of aid GAVI offers may want to read this short note on our website.

    Thanks,
    Ayah

  2. Ranil Dissanayake

    August 14, 2009 at 7:30am

    That does make much more sense. I still get the feeling that the end-result of COD Aid will be a (more widespread) system much like the current PAF approach to budget support, which leads to ex-ante distortion of Government spending: Government gets more money by immunising more children, so it spends a huge amount of money immunising children which may (and in places I’ve witnessed PAF target-chasing, does) distort the balance of funding away from their national plan.

    The only way this can be avoided is if the COD targets match perfectly the national plan.

    Of course, it may be that donors want to distort the balance of funding because they think national Governments are wrong, but then we need to be honest about this and stop pretending that ‘Ownership’ is anything but a completely hollow and meaningless concept.

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