Output-based Aid - Advantages

Advantages

According to the GPOBA, OBA improves upon other forms of aid in a number of ways. The first is by creating transparency since the provider and receiver of any subsidy will be known to each other and the public. Performance risk is shifted to the providers in OBA schemes since they are accountable for what they deliver. OBA schemes are said to provide incentives for innovation in projects as well as a means for mobilizing expertise and finance from the private sector. Finally, OBA provides internal tracking of results.

Professor Malcolm Pitts at Berkley University believes that OBA schemes are more effective than traditional aid projects since they invest in already existing infrastructure. OBA schemes can provide poor consumers with the leverage to determine the quality of the service they are provided with. For example, in a health-care project, individuals receiving OBA will gain choice in where they want to go for their health care needs, essentially a choice between options in the public and private sector. In the case of OBA, existing service providers will be granted subsidies for their performance, based on the number of people who use their services. In this way an individual can choose between multiple service providers, whether public, private or non-governmental, and only after the service has been provided will they be given the subsidy for their performance.

Compared to other aid schemes where projects were pre-funded by a donor, OBA uses explicit funding. Because of this, in the case that service providers fail to deliver, it is them and their investors who will bear the brunt of financial loss, not the taxpayers or those receiving a service.