OBA subsidies are offered in transport construction, education, water and sanitation systems, and healthcare among other sectors where positive externalities exceed cost recovery exclusively from private markets.
[1] In healthcare, OBA is often implemented by contracting providers in either the public or private sector, sometimes both, and issuing vouchers to people considered at higher risk of disease or in greater need of the health services.
In general terms, PbR is a type of public policy instrument whereby payments are contingent on the independent verification of results.
OBA is specifically targeted for individuals in developing countries who lack the financial means to pay for basic services.
It is an alternative to the majority official development assistance (ODA), which is generally provided as grants, loans and guarantees, and is therefore disbursed in advance of delivery.
OBA seek to provide incentives for the achievement of both outcomes and outputs by developing country governments, public agencies, commercial operators and civil society organizations.
The service provider is responsible for the initial financing of the project and, only after results have been verified, will the firm receive subsidies from a donor.
The subsidies are targeted to poorer individuals, since OBA initiatives are carried out in regions with significant amounts of poverty.
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.
[12] Malcolm Potts of the University of California, Berkeley believes OBA schemes to be more effective than traditional aid projects because they invest in extant infrastructure.
[13] Compared to other aid schemes where projects were pre-funded by a donor, OBA uses explicit funding; if service providers fail to deliver, they and their investors, rather than taxpayers, who bear the brunt of financial loss.
[16] Possible criticisms include the need for recipients to obtain pre-financing, the risk of unintended consequences, higher monitoring and verification costs, and the difficulty of setting the incentive at the optimum level.
[18] Professor Robert Wade, of the London School of Economics, said in an article that the PSD strategy is: "A continuation of previous Bank policies to reduce the state to a coordination and regulation role, leaving private companies to organise production and service delivery.
Not only does this allow them to further their economic control of infrastructure in poorer nations, they are also able to avoid many of the risks of OBA through various agreements and by passing on some of the costs to the state and the taxpayers.
Sarah Anderson of the Institute for Policy Studies said that many grassroots and community organizations will not have the means to provide initial financing for service projects.
[23] In 2002, the World Bank launched its Private Sector Development Strategy (PSD), of which OBA was a key component.
[24] The partnership has worked with various international partners to pursue output-based initiatives in fields of healthcare, water, energy, transport, telecommunications and education.
In healthcare, OBA is often implemented by contracting providers in either the public or private sector, sometimes both, and issuing vouchers to people considered at higher risk of disease or in greater need of the health services.
Existing communication operators bid for subsidy contracts to expand their networks and services to rural areas with poor access to telecommunications.
[32] Performance-based service delivery models for rural water supply have emerged in Africa despite the unfavourable institutional environment.
[33][3] Researchers proposed policy recommendations to improve access to safe drinking water in rural Africa.
For example, the Uptime Catalyst Facility, a UK-registered charity, delivers global rural water services through results-based contracts (RBCs).
Uptime works with more than 12 providers in 12 countries to bring sustainable drinking water supply to 1.5 million rural people.
At a later stage, Uptime Catalyst Facility plans to turn this pilot work into a public-financing model in Africa, Asia and Latin America.