The idea that development actors should experiment, learn and adapt is hard to disagree with. But how can this approach, referred to here as adaptive programming, be delivered through contractual arrangements with implementation partners?

This report surveys a branch of economics known as contract theory, with the objective of drawing attention to some of the challenges that emerge when viewing adaptive programming from a contracting perspective. The key challenges and opportunities of this approach are outlined below:

• Adaptive programming is an approach to development that encourages experimentation, learning and adaptation. So it requires contracts that allow for activities to be changed in response to the results of experimentation.
• Under adaptive contracts, service providers may want to manipulate experiments to produce results that favour them. Contract theory shows how to design contracts that create incentives for genuine experimentation and truthful disclosure of results.
• Theory suggests contracts that fully delegate decisions to contractors but terminate if no success is evident after some period of time, or contracts that offer bonuses for success in later periods but pay regardless of performance in earlier periods.
• Contract theory is abstract and meant to apply to economic activity in general, rather than development interventions in particular. This paper is intended to encourage practitioners and theorists to reflect on the gaps between theory and practice.

Report by the Overseas Development Institute