Aid effectiveness, transaction costs and conditionality in the education sector

The reduction of transaction costs is a commonly mentioned yet rarely elaborated goal for aid effectiveness in educational development. The casual use of the concept of transaction costs conceals which costs may be reduced, which costs are required and, indeed, what transaction costs actually are. Examining issues related to harmonizing the efforts of multiple donors in education development, this paper analyzes aid conditionality from a transaction-cost perspective. Using transaction-cost analysis, we expand on typical notions of policy conditionality to look at how organizational reforms may affect transaction costs and how aid contract relations may be influenced by conditionality.