Analysing Performance-Based Financing through the Lenses of the Principal-Agent Theory

We approach Performance-Based Financing (PBF) through the lenses of the Principal-Agent theory to critically analyse PBF and elucidate the principal elements, main challenges and possible pitfalls. We discern a framework comprised of eight dimensions: context and other stakeholders, main principals (government, donors, purchasing agency), verification officers, agents (health providers), the PBF contract, benefitting principals (patients), positive and negative effects, and costs and benefits. Moreover, PBF is seen as a package of choices over six elements: governance arrangements, matrix of indicators, monitoring and evaluation arrangements, financial incentive arrangements, dispute settlement mechanism, and ancillary components. We advise the use of ‘theory-based evaluations’ (TBE) to advance our knowledge on PBF. The proposed framework acts as a good starting point for TBE, given its comprehensiveness and reference to an established theory.