Organizational reform and the rise of trust funds: Lessons from the World Bank

Abstract

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.

International organizations and development finance: Introduction to the special issue

“…The articles by Eichenauer and Reinsberg (2017) and Reinsberg (2017) analyze earmarked aid in general and Bpass-on funds,^which are a specific manifestation of earmarked aid, respectively. Both papers build upon an impressive new dataset that documents the four-fold increase over the past 20 years of a hybrid type of development finance.…”

“…Further, states may use earmarked funds for a variety of self-interested purposes for which multilateral aid financed through core funding is not as useful. Reinsberg (2017) shifts the focus from government donors of the funds to the strategic goals and behavior of staff and management within multilateral organizations. When IO staff members need to identify resources to fund the initiatives for which they are responsible, they often strike deals with member governments and other units within multilateral organizations in order to sustain their operations.…”

“…In this regard, the Eichenauer and Reinsberg (2017), McLean (2017), and Reinsberg (2017) contributions to this special issue represent important attempts to provide more complete and accurate data coverage of IO development finance flows and thus improve our collective understanding of the politics and the effects of such flows. However, IO scholars cannot afford to rest on their laurels; substantially more effort will be needed in the future to ensure that the most important questions about the causes and consequences of IO development finance are empirically tractable.…”

Trust Funds as a Lever of Influence at International Development Organizations

“…Trust funds play a relatively small role in its operations given that the World Bank primarily is a lending institution and trust funds complement its business with grant resources. Moreover, the World Bank is a leader of development thinking and therefore a significant share of trust‐funded initiatives are developed by Bank staff rather than being imposed from the outside (Reinsberg, ). If donor influence was to be found in the World Bank context, it would be even more salient in financially less autonomous multilateral organizations.…”

Information Transmission and Ownership Consolidation in Aid Programs

“…As one example, our model could be used to explain the increasing amount of aid that is channeled via multilateral institutions as non‐core aid (“multi‐bi aid”), see Eichenauer and Reinsberg () and Reinsberg ().…”