Poster #155 - Mission or Market? Analyzing the Determinants of Nonprofit vs. For-Profit Selection in USAID Contracts

• In Event: Saturday Poster Luncheon

Abstract

The management of U.S. foreign aid spending has recently come under intense scrutiny, culminating in the current administration’s dismantling of USAID. This decision has sparked heated debates about the nature and future of foreign aid. Amid these developments, contractors remain central to the implementation of aid programs (Gibson, 2005). However, the processes that govern their selection are still largely underexplored in the aid allocation literature (McLean, 2017). While normative debates about contractor selection and monitoring persist, relational contracting and long-term agreements are often seen as critical tools for mitigating principal-agent problems. This underscores the importance of understanding how contractors are selected and the macroeconomic and institutional factors shaping these decisions.

Nonprofits are often viewed as natural partners for public sector organizations due to presumed value congruence. However, the growing marketization of the nonprofit sector has blurred distinctions in motivations between nonprofit and for-profit organizations (Cooley & Ron, 2002). This shift is evidenced by increasing competition between nonprofits (NPOs) and for-profits (FPOs) in public service contracting, both in the U.S. and internationally (Anguelov & Brunjes, 2023).

This study examines when value alignment is prioritized in foreign aid contracting by analyzing USAID overseas contracts from 2002–2023, using prime and subaward data from usaspending.gov. Drawing on principal-agent theory and transaction cost economics, I posit that the prioritization of value alignment is reflected in the selection of NPOs over FPOs. Using logistic regression with city-level and time fixed effects, I investigate how macroeconomic and institutional conditions in the location of contract performance influence contractor selection.

This paper advances understanding of how agency problems in bilateral aid are mitigated through contracting decisions. By focusing on the determinants of contractor type, it contributes to the "reformist" literature on aid effectiveness, offering insights that are particularly relevant for bolstering public trust in foreign aid expenditures at a time when confidence in public institutions is waning. 

Author

• Nnenna Ogbonnaya-Orji, University of Washington
  Presenting Author