INTRODUCTION: THE PROBLEM Aid agencies differ from other organisations in the public and private sectors of society in a number of important ways, but most strikingly in that the people for whose benefit they are supposed to work are not the same as those from whom their revenues are obtained. Some people (taxpayers or private donors as the case may be) pay money directly or indirectly to the agency so that other people may benefit. This simple fact may seem unremarkable, but in reality it creates a strikingly difficult set of problems in institutional design. Why should this be so? Other types of organisation, both public and private, carry out activities for the supposed benefit of those who pay them to do so. If the supposed beneficiaries are not happy with the benefits they receive they can protest – either by withdrawing their custom (if the organisation operates in a market), or by voting against the political authorities (if the organisation is controlled by a political process). In order to find out whether the benefits received are adequate given the costs, the beneficiaries need only consult themselves and their own preferences. Does this product yield good value for money? Are these public services worth the taxes we pay? Such interrogations of oneself are the stuff of daily life in all free societies.
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