Results-Based Financing and Its Potential Role in Advancing the Nexus Approach - Governing the Nexus: Water, Soil and Waste Resources Considering Global Change - page 85

Without attempting to lay out a full logical framework on how to establish a
strong linkage between these elements, a simple approach could be to (1) thor-
oughly de

ne the objective of the intervention, (2) explore how it can be deter-
mined that the objective has been achieved and (3) identify the best way to measure
such achievement. This should be based on a clear understanding of the problem
that needs to be resolved.
The most critical link of the chain is the relationship between objective and
result. Table 1 provides a few examples to show why some options have better
chances of success than others do.
The first example for reducing irrigation water consumption at the farm level

shows a weak link between objective and result because introducing a new tech-
nology does not necessarily lead to lower consumption. The farmers who install the
new technology could opt to grow a more water-intensive crop, increase the number
of crop cycles or cultivate a larger area on their farms leading to higher water
consumption.
The second example adds a problem in the indicator. It is obvious that not
checking whether the systems have been installed and paying an incentive only for
buying the equipment is less reassuring that the objective will be achieved.
In the third case, it is very clear that objective, result and indicator are aligned.
However, the questions arise about who receives the incentive and how the
incentive is defined. As it is difficult to measure how much water goes to each
individual farm, a set of rules should be set to avoid the

problem, as
some farmers may be making an effort to reduce consumption while others may
continue with the old practices and still receive the bene

' Free rider '

ts (if paid to a water users
association, for instance or distributed uniformly among all farmers within the
scheme).
Despite the analysis above, it should be considered that the farmers could also
have a different objective than simply protecting a water resource by limiting
extraction. They may also expect to grow higher value crops while still reducing the
volume of water needed to do so. A demand responsive approach should always be
preferred when willing to align, to the extent possible, the interests of the different
stakeholders.

3.2.2 Suitability of RBF

In determining whether an RBF mechanism should be considered as an alternative
to a more conventional approach, consideration should be given to the precondi-
tions to use this kind of tool (is RBF possible) and how compelling is it to use such
a tool (is RBF attractive). In the discussion below, the

' '

agent is the stakeholder

' '

responsible for delivering the expected results while the principal is the entity

providing the funding to the RBF scheme.