Creating a Market for Outcomes

This article suggests that interactions between development agencies and recipient governments are mostly about inputs deemed (but not known) to contribute to improvements in living standards in recipient countries, rather than outcomes. We argue that the development marketplace is beset by market imperfections because of externalities, principal–agent problems and decision-making under uncertainty, which not only makes it difficult to achieve the right outcomes, but also takes away incentives to learn about outcomes. A fundamental rethink of responsibilities and accountabilities in the development business would make sure that development outcomes are traded in the development marketplace. It would put recipient countries in charge of contracting development agencies to provide these outcomes. Development agencies would commit to, and be held financially accountable for, outcomes, that is, real improvements in welfare indicators. We describe the role of the evaluation function in aligning incentives with the ultimate goal of improving lives, and provide examples of emerging solutions.