Tuesday, March 29, 2011

Pay-For-Performance Or Cash-On-Delivery?

Current debates regarding two forms of foreign aid: pay-for-performance and cash-on-delivery emphasize the importance of the results that foreign aid is supposed to achieve. The traditional form of foreign aid that pays for desired performance is improvised by a new form of aid that pays after desired performance is achieved. This cash-on-delivery approach is welcomed by many as well as rejected by a lot. According to Tina Rosenberg, cash-on-delivery has some advantages over pay-for-performance especially if we consider the bureaucratic formalities and endless paperwork requirements associated with the traditional form of aid. Cash-on-delivery will not only dispense with all these formalities but also will increase the number of households hooked up to an urban sewer system, decrease child mortality and improve air quality. But this new approach will not work well if it is not supplemented by other programs which will provide the capital money to start a project. Also, if government can manipulate the data of how good actually people are doing then there is a possibility that this form will fail to function.

Although it seems that cash-on-delivery program is totally different from pay-for-performance, in reality it is not so different. The new program has already been experimented in Lesotho, Burkina Faso and Brazil in different forms. According to Rosenberg, this new approach has the potential to be able to make aid more effective and motivate people to come out of poverty.

-Nisha Noor