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  Reforming Technical Cooperation for Capacity Development
Alternatives and Options
Opportunity Costs and Effective Markets - Terms of Reference
Although donors are concerned with aid efficiency, they often send the wrong signals in the inflexible
terms of technical cooperation. For example:
- If it is not possible to accept one part of an aid package without the other parts, the opportunity costs
to the recipient country become zero, as there is no other potential use for the foregone resources;
- Some genuinely cheap modes of technical cooperation (e.g., via NGOs) may require host government
salary costs to be paid whereas expensive grant packages may be perceived to be cheaper;
- A recipient of aid may accept a significantly more expensive mode of support because the transaction
cost in terms of staff time, etc. for arranging a low-cost option seems to be high;
- Technical assistance has definable supply and demand functions. Judgements about what is possible or worthwhile for future TC programmes need to be mediated by notions of “cost.”
Rethinking Technical Cooperation saw the introduction of market elements as a promising avenue to
more efficient TC. Two basic policy reforms called for: a) the introduction of greater cost consciousness,
which would require that a price be attached to all technical assistance personnel to be paid out of the user
agents budget and not from a global allocation in the budget of the finance ministry; and b) untying of the
aid package to allow governments to separately request personnel, equipment and supplies, and training.
It was further argued that more money should go into “free-standing capacity building technical
cooperation”, including services that lend themselves to private subcontracting such as improving means
of transport, maintenance of computers and appliances, in-service training systems, and so on.
Objectives of the study:
- Document the contradiction between the efficiency imperative and TC-induced failures and
distortions of incentives;
- Analyse the determinants of supply and demand of technical cooperation from a market perspective
and lay out the different cost/benefit considerations from donor, recipient and “development industry”
perspectives;
- Explore market-oriented innovations for TC and identify telling examples that demonstrate the
benefits (including local alternatives, TC between developing countries, private sector, etc.)
Issues to be considered include:
- Differences in magnitude and nature of costs for TC for the parties involved;
- Complex patterns of “opportunity cost” induced by differences among TC partners;
- What type of “market failures” are generally perceived by donors to correspond to their interests, but result in sub-optimal allocations?
- How do commercial firms and (small) enterprises create capacity and transfer knowledge? What
lessons can be drawn from this?
- Can the “opportunity cost” for recipients be quantified or their dimensions illustrated?
- Potential prices for TC, technical assistance budgets and their integration into public investment
programmes, building capacities for support services;
- How, if at all, can the net benefits be optimized for both donors and recipient?
- Why are the signals often wrong? What are the right signals?
- What are the genuinely competitive modes of TC service procurement? What are their advantages
and limitations? (social impact, local consultants, South-South cooperation and others)?
- What are negative externalities that increase recipient costs (e.g., brain drain, etc.)?
Other "Alternatives and Options" Focus Studies
General Information (applicable to all Focus Studies)
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