Publication: Estimating the Fiscal Risks and Costs of Output-Based Payments : An Overview
Date
2005-07
ISSN
Published
2005-07
Author(s)
Abstract
Output-based payments are an important
tool of government policy. Sometimes governments offer
"output-based aid" to subsidize services sold to
households. Because output-based payments are tied to the
delivery of outputs, they have an obvious advantage over
input-based payments. In agreeing to make such payments,
however, governments assume a liability not unlike that
created by taking on debt. Moreover, in some cases the
payment amounts are subject to considerable uncertainty. As
a result governments may benefit from estimating both the
costs of these commitments, and the new fiscal risks they
create-and comparing these costs and risks with those of
alternative policies. Output-based payments come in many
forms, as do the risks they present. However, measuring the
risks and costs of output-based schemes is feasible but
also, inevitably, mathematical. Quantifying risk necessarily
involves some knowledge, and application of probability and
statistics; estimating the cost of uncertain payments that
occur at different points in time, requires asset pricing
techniques from modern finance theory. Nevertheless, most of
the important issues are conceptual, rather than technical.
Citation
“Boyle, Glenn; Irwin, Timothy. 2005. Estimating the Fiscal Risks and Costs of Output-Based Payments : An Overview. OBApproaches; Note. No. 8. © World Bank, Washington, DC. http://openknowledge.worldbank.org/entities/publication/870cb8c2-6c86-5f83-af80-b144962e340a License: CC BY 3.0 IGO.”