Welcome to the e-discussion, Jacqueline and I look forward to receiving your comments.
Results-Based Financing, with its OBA subset, is a tool that focuses on delivery by aligning incentives of the implementing partner and the financiers. The implementing partners mobilize pre-financing, putting some skin in the game (to use Warren Buffett's term). The principal-agent problem is a standard setup in mainstream economics and social science: implementation risks are managed better if the agent's incentives are aligned with those of the principal. The rational agent responds to carefully-structured incentive rationally.
On the other hand, "behavior change" deals with the thinking that may not be rational, i.e. automatic thinking, social norms and mental models. We hope to hear from you whether RBF also pushes the implementing partners and beneficiaries to discard irrational automatic thinking, social norms and mental models. For example, World Bank counterparts often underbudget access to water sewer for the poor because their record of historical costs is from the richer areas where water access costs less (because it's closer to the sewer network, it's not a low-lying area, etc.). RBF/OBA pushes the implementing partner to address this irrational and discriminatory underbudgeting. Behavior change specialists call this push an "ethnographic immersion".
I am looking forward to hearing your perspective and examples of biases than RBF/OBA is better positioned to address.
Client countries, private investors and implementing partners are often much more averse to losing something they have than they are inclined toward gaining something they don't. By investing their money on any given project, they try hard to avoid losing it. So the fear of losing money or not getting the expected return on investment may become a great motivation to resort to RBF which has the advantage of linking disbursements to results. So, loss aversion appears to be the motivation toward behavior change with regard to RBF/OBA.
On the hand, beneficiaries of an RBF/OBA water project for instance are motivated by the prospect of having sustainable access to potable water supply at affordable cost. The perceive the risks tied to an RBF/OBA water project as lower than those of alternative water supply solutions (water costlier and limited supply; waterborne diseases and associated health costs etc…). In this case, overconfidence about expected rewards may be the motivation.
Really interesting to think about the why of under-budgeting and how RBF may provoke more rational thinking and behavior. As Oleh suggests, under-budgeting could be due to using an incorrect cost basis.
It can also be that counterparts are using a passive or historical approach to budgeting for projects that doesn't even consider true costs (we budgeted X last year, we can only afford 2% more this year to provide X). Results based approaches force consideration of the true cost of access and service, a reality check that can have a sectoral effect. In many countries, social infrastructure and services, such as healthcare and education, are provided on the basis of historical budgeting, with little connection to true costs. Many results-based approaches in health services, for example, would cover the full cost of service provision through a combination of funding sources - this can be a mix of government and donor funding, sometimes with a user fee or co-pay, for a set package of services, such as maternal and child health visits. The acknowledgement of the full cost of service leads to rational behavior (full funding) for the RBF project that can lead to further rational behavior by government with other providers of the same services.
RBF payments are often linked to service quality, and the perception of access to higher quality services often motivates potential beneficiaries, as Sylvestre notes. This is especially true in the health and education sectors.
From the service provider side, rational behavior comes about in both not-for-profit or for-profit providers because their continued operation as an organization will require the full cost of service to be covered through some combination of funding including the RBF, for which there will be some form of verification. Additionally, verification may be linked to service satisfaction, and providers may then be more sensitive to beneficiaries perceptions.
Entering into an explicit RBF arrangement can encourage rational behavior in all parties.
One of the topics I have heard many times is the reluctance of targeted populations to pay for services that they had previously gotten for "free" such as water and illegal electricity connections, as well as resorting to open defecation. This is particularly true if certain basic infrastructure services have been traditionally considered as a "public good" -- however mistaken this point of view may be. The success or failure of a project is therefore not only linked to whether connections for sewer, water and electricity are made, but whether people are actually using them despite having to pay.
I saw this documentary on Current TV several years ago that presented the case of homes in India receiving new toilets, yet many villagers still preferred to continue defecating by the river. Public shame, personal hygiene, and awareness/concern for the community's health and environment were all factors that needed to be implemented -- many times the space outside of one's house is not something that an individual is taught to care about, which I find perplexing given that some societies are supposed to be more "collective" in their way of thinking relative to the "individual" Western societies.
Is it fair to equate assumptions for the demand of a service within the talk of "behavior change?" And if so, what other variables need to be incorporated into the design of an RBF project to avoid installing a service but without any willing users (even if prior to implementation there "seemed" to be "buy-in?").
Through its projects GPOBA managed to influence behavior change at different levels – households/consumers, government stakeholders, private sector providers, etc. The role of the government is crucial to the success particularly for establishing an enabling environment which would allow for replication or scaling up. OBA appeals to client governments, especially those with willingness to adopt innovative approaches to service delivery. Some governments that have been skeptical about increasing the role of the private sector in infrastructure service provision have actually welcomed OBA as a way to target service to the poor, while holding private operators accountable for agreed outputs.
By helping the consumers access efficient, clean, and reliable services and facilities, that otherwise would be unaffordable, OBA projects opened new perspectives and brought significant improvements to their lifestyles and influenced behaviors. Armenia heating and gas project offered a clean, efficient, and low-cost heating solution to vulnerable households. Many of the poor families were unable to afford the cost of connecting to gas networks and heating facilities/equipment, others relied on costly electricity or polluting solid fuels for heating solutions, or even worse, on hand-made heaters that were an eminent health and safety hazard to the family and to the building. In early 2000s, this was a life-changing intervention for the most vulnerable people.
In many countries access to finance by local operators has been a key challenge. With the OBA subsidy acting as additional comfort, partnerships with micro-finance institutions to provide financing helped overcome the access to finance issue, and enabled implementation of viable financing schemes. In these cases, OBA subsidies provided the assurance that if outputs are delivered as agreed, donor-funded subsidy payments will be disbursed.