Is payment by results just the most recent over-hyped solution for development, or is it an effective incentive for accelerating change?
When reading up on payment by results (PbR) recently I was struck by the contrast between how quickly it has spread through the aid world and how little evidence there is that it actually works.
In a way, this is unavoidable with a new idea – you make the case for it based on theory, then you implement, then you test and improve or abandon. In this case the theory, ably argued by Center for Global Development (CGD) and others, was that PbR aligns incentives in developing country governments with development outcomes, and encourages innovation, since it does not specify how to, for example, reduce maternal mortality, merely rewards governments when they achieve it.
Those arguments have certainly persuaded a bunch of donors. The UK government (pdf) says that this “new form of financing that makes payments contingent on the independent verification of results ... is a cross government reform priority”. The UK’s department for international development (DfID) called its 2014 PbR strategy Sharpening Incentives to Perform (pdf) and promised to make it “a major part of the way DfID works in future”. David Cameron, the British prime minister, waxes lyrical on the topic.
But I seem to be coming up against a long list of potential problems with PbR. Let’s start with Paul Clist and Stefan Dercon: 12 Principles for PbR in International Development (pdf), who set out a series of situations in which PbR is either unsuitable or likely to backfire. For example if results cannot be unambiguously measured, lawyers are going to have a field day when a donor tries to refuse payment by arguing they haven’t been achieved. They also make the point that PbR makes no sense if the recipient government already wants to achieve a certain goal – then you should just give them the money up front and let them get on with it.