In many developing countries non-governmental organisations (NGOs) participate in the delivery of what are essentially private goods, in particular, health-care and education. In an economy without NGOs, there may be good redistributive and efficiency reasons for the government to provide these goods in kind. But if direct government provision of such services is ineffective or inefficient, when is contracting out to an NGO-like institution preferable to using a profit-making organisation? This study by the World Bank presents two descriptive models on NGOs and poses questions about public policy towards them. The focus of the paper is to guide research on the behaviour of NGOs, and thus to inform policy decisions regarding them.
NGOs provide useful real and financial links with external donors. They are used to provide services the government favors, and donors are willing to fund. The question is: Does an international NGO or a grassroots organisation yield the best outcome for both government and donor? Transferring donor funds to the international NGO is more efficient than transferring them to the grass roots organisation. However, when government-donor cooperation fails, a project implemented by an international NGO is effectively killed, while one implemented by a grass roots organisation can limp along. Therefore, this otherwise less efficient organisation might be preferred.
Two sets of empirical issues arise. The first concerns the production and cost function of firms that provide services that are valued by governments, and the impact of NGO status on realised costs and quality. The second concerns the choices of governments, and the policies they adopt towards alternative providers of these services. In assessing the behavior of NGOs and for-profit firms several key issues and questions emerge:
- How responsive are NGOs to income shocks and specific needs (for example in health care)?
- How does the performance of NGOs compare with the behavior of civil servants?
- Do NGOs act to complement direct public provision or substitute for it, and are these cross elasticities different between NGOs and other private sector providers?
- What kinds of activities – for example health, education, credit and rural extension services – are NGOs more likely to be represented in?
Analysis of the funding behavior of specific bilateral donor-country relationships over time could yield useful insights. Particular issues include the following:
- Does the sectoral focus of the project affect the strength of the partnership and hence its optimal design?
- Any correlation between the types of projects implemented through international and grassroots NGOs could be used to test the idea that the former may be preferred when the parties’ preferences are closely aligned, but that the latter is favored otherwise.
