CityNudges
Location
Kosovo
Sector
Urban Policy
Type of Investment
Grant
Project Stage
Pilot
Length of Investment
2018-2021
Investment Overview
Ideas42 specialises in the application of behavioural science to social problems. Citynudges involves the use of pay for performance contracts to reduce the risk to city authorities when applying behavioural science to increase tax revenue or reduce energy and water consumption.
The Development Challenge
There is a growing body of evidence which shows that approaches and interventions informed by insights from behavioural science, or ‘nudges’, can help local governments improve outcomes in areas such as increasing tax compliance, conservation of water, or conservation of energy. Such approaches have started to become more widely adopted by administrations and utilities in high-income countries. However, unfamiliarity with the methods, budgetary constraints and market coordination failures mean these approaches have not been widely utilised in lower income markets.
The Innovation
The CityNudges innovation involves the use of pay-for-performance contracts arrangements which reduce the risk to city authorities when applying behavioural interventions to policy priorities. A service provider like ideas42 incurs the upfront costs, as well as designing and applying behavioural interventions, with costs to be reimbursed by a government or utility when a clearly defined impact target (increased tax revenue or energy savings, for example) is met. Third party outcome payers could also be brought into the mix to mitigate the risk for the service provider.
Our Investment
GIF provided a $300,000 grant to enable ideas42 to research the feasibility and business model, conduct a proactive search for cities or regional governments to partner with, and negotiate agreements to test the approach. Implementing a few pay-for-performance contracts would help de-risk this innovative structure for governments and other stakeholders and be catalytic in creating a market for ‘nudge’ service providers and encouraging governments to formally procure such services.
Progress to date
This grant concluded in 2021. Three MoUs to cooperate in the area of behavioural science in tax collection had been discussed with city authorities in Pristina (Kosovo), São Paulo (Brasil), and Delhi (India), but these did not include the use of pay for performance measures. The pilot produced a number of learnings on the feasibility of pay-for-performance contracts for implementing behavioural interventions. Through meetings and field investigations in over ten countries, ideas42 identified that lack awareness about the both behavioural sciences and pay for performance measures was a critical barrier, with a perceived lack of precedent in the geographic vicinity, or uncertainty and hassles related to structuring tenders and contracts, also cited. Interestingly, mental accounting on the part of governments also led to a resistance to incurring costs in order to make savings. Ideas42 concluded that subsequent iterations of the programme should have greater geographic focus to create a cluster of collaborating entities which can learn from each other, establish precedent and stimulate demand.
CityNudges in numbers
Grant provided by GIF