Abstract
Purpose The purpose of this paper is to explore the adverse incentives at the front end of government-funded projects with concentrated benefits and no liabilities for the privileged groups. In particular, the author discusses the risk of perverse incentives of the types typically found in the development aid sector that results in counterproductive outcomes. Design/methodology/approach The paper uses a simple conceptual framework based on agency theory. A qualitative, case-based approach with purposive sampling was chosen for the empirical part of the study. Eight Norwegian projects were selected because incentive problems were to be expected, and one development aid project served as a reference case. Findings The paper finds that low strategic project success corresponded well with the terms of financing. There were clear indications of agency problems, in three cases to the extent that the incentives turned perverse. The paper concludes with a discussion of relevant measures to prevent the emergence of perverse incentives. Originality/value The paper contributes to an improved understanding of the incentives related to public project initiation and selection, which is an under-researched topic and generally not included in formal project governance schemes. The research should therefore be useful to scholars as well as practitioners within the field of project governance.
Highlights
Government-funded projects, such as transportation infrastructure, public buildings and major sporting events, are normally intended to serve some overall societal goal and to benefit the whole nation
The experiences gained from development aid projects are useful for exploring this problem, which is where we find the most extreme cases of perverse incentives
We find some inspiration from the literature on fiscal federalism, it takes more of a macroeconomic perspective than a project perspective
Summary
Government-funded projects, such as transportation infrastructure, public buildings and major sporting events, are normally intended to serve some overall societal goal and to benefit the whole nation. There may be good reasons why such projects are government funded, such as to promote redistribution or provide insurance or external benefits. Such projects will appear as “gifts” to a privileged group that is often heavily involved in preparing the project proposal. The starting point for this study was our general impression that such projects often score low on relevance and viability when seen in retrospect. They end up being oversized and expensive, and in some cases, it is not even clear whether they fulfill a genuine need
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