An Institutional Analysis of Development Cooperation

Abstract

This report is published in Sida Studies in Evaluation, a series comprising methodologically oriented studies commissioned by Sida. A second series, Sida Evaluation, covers evaluations of Swedish development co-operation. Both series are administered by the Department for Evaluation and Internal Audit, an independent department reporting directly to Sida's Board of Directors. Foreword -Does 'aid' itself create incentives that undermine sustainability? This is the provoking question underlying the present study, which explores how the incentives that arise in the system of development co-operation affect sustainable outcomes. Reports may beThe point of departure is the view that many development problems in countries where foreign 'donors' operate are caused by weak or so-called perverse incentives for local actors to engage in collective action for their common good. In turn these perverse incentives are to a large extent rooted in unfavourable institutional circumstances. Sustainable solutions to development problems require institutional conditions that shape incentives for collective action, and development co-operation may promote the creation of such favourable institutions. However, it may also create or reinforce perverse incentives that prevent sustainable outcomes. In order to better understand any such 'donor'-imposed constraints to development, Sida's Department for Evaluation and Internal Audit, which is an independent department reporting directly to Sida's Board of Directors, commissioned the present study. It was conducted by a research team from the Workshop in Political Theory and Policy Analysis at Indiana University, headed by the internationally acknowledged political scientist Professor Elinor Ostrom.The contribution of the study is manifold: First of all, it introduces an institutional perspective on development and development co-operation that is partly novel to Sida and the rest of the 'aid' community. This perspective highlights the importance of incentives and increases our understanding of incentive problems within developing-country contexts as well as within the system of 'aid' itself. Secondly, the study provides a method and tools for institutional analysis and evaluation of the relationship between 'aid', incentives and sustainability. It illustrates theoretically how these tools can be used to analyse incentives within the complex system of 'aid', associated e.g. with 'donor-recipient' negotiations and with different 'aid' modalities. Finally, the study applies the method empirically, by initiating an analysis and evaluation of the incentive structure and its causes within Sida and five Sida-supported projects in India and Zambia. The analysis is based on interviews of more than 175 persons within Sida and Sida-supported activities and a thorough literature survey. The study concludes by drawing lessons and recommending Sida an agenda for action.A central argument of the study is that Sida can contribute to more sustainable outcomes, through 1) a more explicit and systematic und...

Governing Transformation towards Low-carbon Societies: An Ideational Perspective from Developing Countries

“…Institutional perspectives have contributed to the study of socio-natural interactions, enhancing our understanding of the problems of common pool resources, environmental hazards, and risk and environmental management (Hotimsky et al 2006). For instance, the scholarship on institutional economics informed a significant body of research on local common property arrangements and multilateral environmental agreements (North 1990;Ostrom 1986;Hanna et al 1996;Loehman and Kilgour 1998;Young 2002;Dolšak and Ostrom 2003;Young 2008;Ostrom 2008a;Ostrom 2010;Ostrom 2011;Ostrom and Andersson 2002). Research on common-pool resources explaining the role of institutions in managing them and the incentives for cooperation (Ostrom 2008b) has demonstrated that global processes and institutions shape local outcomes (Agrawal et al 2008).…”

Can foreign aid donors credibly threaten to suspend aid? Evidence from a cross-national survey of donor officials

“…While agency problems are rarely mentioned in the literature on political conditionality, it is well documented that institutional incentives can affect the quality and sustainability of foreign aid (Gibson et al 2005;Martens 2002;Ostrom et al 2002;Svensson 2006). Agency problems arise during aid distribution, because responsibility for disbursement is delegated to agencies whose preferences do not directly align with donor governments (e.g.…”

“…Bush 2015;Gibson et al 2005;Hawkins et al 2006;Martens 2002). We know, for example, that policy conditionality is often not enforced because of a 'pressure to disburse' (Ostrom et al 2002;Svensson 2006). Donor agencies seek to maximize their aid budgets and are therefore incentivized to keep disbursing, even if the recipient fails to meet the conditions of the loan or grant.…”

“…The possibility that institutional incentives affect the likelihood of an aid suspension occurs, because donor governments delegate the disbursement of foreign aid to donor agencies (Gibson et al 2005;Hawkins et al 2006;Martens 2002;Nielson and Tierney 2009;Ostrom et al 2002;Svensson 2006). Delegation to aid agencies means that institutional incentives to suspend aid could -at least under certain conditions -supersede strategic incentives on the part of donor governments not to suspend aid, influencing how foreign aid diplomacy is practiced abroad.…”

Transformation of a Policy Area: Development Policy is in a Systemic Crisis and Faces the Challenge of a More Complex System Environment

“…See Ostrom et al (2002), Martens et al (2002), Gibson et al (2005), and Faust and Messner (2010, 260-270) among others; and from the fundamentally critical perspective, see also the authors mentioned in the introduction. Efforts to reform the international aid system -frequently referred to as the Paris/Accra/Busan agenda -form part of the more comprehensive international aideffectiveness agenda, the context in which they gained their momentum in the first place.…”