Over the past two decades, earmarked funding to international development organizations through special-purpose trust funds has increased greatly. This paper studies the incentives for trust funds from the perspective of multilateral agencies, notably the World Bank. A theoretically intriguing type of funds are so-called “pass-on funds,” in which one unit hosts the fund, then passes on its resources to another type of unit for implementation. Each unit has different preferences for the specific types of activities to be supported by the fund. Interviews with World Bank staff and complementary documents demonstrate the rationale for pass-on funds and the associated division of labor between fundraising network units and implementing regional units. While pass-on funds reflect an efficient division of labor between functionally specialized units, they increase the misalignment between sector-specific global priorities and country-specific needs. Organizational reform drove the sudden explosion of pass-on funds around the millennium turn, facilitated by growing availability of donor monies for specific sectors and by lenient internal regulation. Organizational reform undermined budget autonomy of sector units, causing those units to seek new funds in their areas of expertise. A number of reform features also reduced administrative budgets of country units, increasing their demand for pass-on funding grants. The results contribute to the emerging literature on earmarked funding and highlight the need to consider international organizations as heterogeneous actors.
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The Web Appendix is available on the Review of International Organizations’ website.
See http://mptf.undp.org/overview/funds (accessed August 15, 2016).
Despite some overlap, the terms are not interchangeable. All current global funds are pass-on funds, but not all pass-on funds are global (but sometimes regional). Moreover, my definition of pass-on funds also excludes financial intermediary funds because the pass-on logic does not apply to the Bank but across international organizations.
For a disaggregated presentation of host-user relations at the level of individual units, see Web Appendix B3.
Technically speaking, the International Development Association (IDA), also created in 1960, was the first trust fund. However, because of its broad mandate and its nearly universal membership, IDA is not considered a trust fund in the common sense of funding earmarked for special purposes.
I am grateful to an anonymous reviewer for suggesting the idea of functional differentiation.
The case may be different for preference divergence on recipient countries. Such divergence may lead to more country-specific funds. Note however that a minority of trust funds have a prespecified target country.
An anonymized list of all 80 interviews is available from the author upon request.
Trust funds for global public goods reach new beneficiary countries because these countries often have no need for development assistance on national public goods, but they supply global public goods most efficiently (see also, Bagchi, Castro, and Michaelowa 2016).
Interview with Social Development Specialist (August 24, 2014).
Sometimes units may still accept pass-on funds for poorly aligned research studies because some (not all) SMU staff get prestige and psychic benefits from getting published. The testable empirical implication would be that these staff members should be less sensitive to misalignment.
Interview with Operations Officer from a Central Unit (August 12, 2013).
Interview with Trust Fund Coordinator (August 14, 2013).
In reality, however, CMU staff may still have lower transaction costs from dealing with pass-on fund staff than external donor staff. I thank Stephen Knack for highlighting this point.
Co-benefits are reflected in the Bank-executed funding items within pass-on trust funds and are quite significant (own calculations, based on World Bank 2013c).
I am grateful to Stephen Knack for mentioning these three issues.
Interview with Trust Fund Coordinator from a network unit (July 23, 2013).
Interview with Senior Operations Officer (August 28, 2013).
Interviews with Trust Fund Manager (July 26, 2013), Coordinator (July 26, 2013), and Senior Program Coordinator (August 19, 2013).
Interview with Program Officer (August 9, 2013).
Interview with Operations Officer (July 30, 2013).
Interview with Trust Fund Coordinator (August 23, 2013).
Interview with Social Development Specialist (August 24, 2014).
Interview with Trust Fund Coordinator from a regional unit (August 2, 2013).
For EU aid through trust funds, see also, Michaelowa et al. (2016).
The similarity of the pass-on funding context at the United Nations indeed is striking. In its inter-agency pooled funds, donor contributions are not a priori earmarked for a specific implementing agency, and decisions on program allocations are made by an administrator, usually the United Nations Development Program, “taking into account the programmatic purpose and results framework of the fund” (UNDG 2015: 4). Implementing agencies face an incentive to obtain additional resources, even at the risk that proposed activities do not match country priorities.
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Reinsberg, B. Organizational reform and the rise of trust funds: Lessons from the World Bank. Rev Int Organ 12, 199–226 (2017) doi:10.1007/s11558-017-9268-1
- Trust funds
- Multilateral agencies
- Bureaucratic politics
- Collective agents