The Provision of Social Services in Fragile States: Independent Service Authorities as a New Modality

Over the past two decades aid agencies have radically altered their approach to aid delivery. Aid allocations are now largely based on attained policy performance rather than on promises of policy change, and delivery modalities have shifted from projects to budget support. In countries where economic governance and government capacity are already reasonably strong these changes are probably a substantial improvement on past practices. However, they are less well-suited at the other end of the spectrum of governance and capacity, now commonly referred to as 'fragile states'. These countries have the most acute needs, yet because of concerns about their ability to use aid effectively they do not receive allocations that are commensurate. Indeed, while paying lip-service to the principle of country ownership, in practice in fragile states donors channel much of their aid for basic services directly to NGOs. While this recognizes that the state has failed as an effective delivery mechanism for basic services, it places excessive reliance upon the intrinsic competence of NGOs. Donor support for NGOs is usually not backed by adequate evaluation of their performance: they are, in effect, unaccountable. In essence, the current problem for aid agencies is that two objectives, helping those most in need and ensuring that aid is well-used, are being targeted with a single instrument, aid allocation. As Tinbergen showed, so structured the two objectives cannot both be achieved: the policy decision reduces to an inherently unsatisfactory trade-off between them. What is needed is a second instrument. If distinctive modalities for aid delivery could be developed that work well in fragile states, aid allocation could be based on need, with effective use being addressed by choice of modality. This paper proposes a new modality by which donors could provide aid for basic services in fragile states: an Independent Service Authority (ISA). The structure of the paper is as follows. Section 2 introduces the concept of an Independent Service Authority, explaining its strengths and limitations, and the contexts in which it is likely to be appropriate. It is not intended to be a general model for service provision, but rather one that is tailored to the distinctive needs of fragile states. Section 3 is a technical section which sets out an integrated framework which 3 can characterize the various challenges posed by service delivery in fragile states. It applies principal-agent theory, which is the standard tool which economics uses to analyze …