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New participatory approaches to rural development include beneficiary consultation and participatory planning, community development support, engagement of nongovernment organizations, local government involvement, and private sector participation.

In 1996, ADB introduced a framework for mainstreaming participatory development processes in its operations. With the ensuing scaling up, the Operations Evaluation Department in ADB examined their effectiveness in 2004. It used the principal-agent model to analyze the roles and relationships of major players in five central elements of service delivery—resources, information, decision making, delivery mechanisms, and accountability.

In the principal-agent model for this case, citizens as a whole are the principal, represented by governments elected to serve it. They provide a budget to organizational providers and hold them accountable. The latter manage frontline providers and hold them accountable.

Further, aid organizations are entrusted by governments to use funds contributed by taxpayers. They also finance projects and provide policy advice. Thus, aid agencies and governments are "proxy principals".

Agents include organizational providers (executing agencies) and frontline providers (e.g., local offices of executing agencies, field staffs, and contractors) who are in close contact with beneficiaries.

The study found that the participatory or bottom-up approaches examined did not alter the principal-agent relationships among policymakers, project providers, and beneficiaries. The conventional problems of project relevance and sustainability were persistent, prevailing not only in past projects but also in the new generation of rural development projects examined.

Of the five central elements of service delivery—resources, information, decision making, delivery mechanisms, and accountability—control of resources was the most critical since it determines power in decision making and authority to hold providers accountable.

Information flow and delivery mechanisms seemed to be less important in the cases studied, but information was powerful under certain conditions, such as when beneficiaries had multiple choices of providers.

Participation is not a goal but a means to an end. Depending on specific conditions, alternative forms of participation can be explored to focus on establishment and strengthening of direct relationships between providers and beneficiaries by making the former more accountable to the latter. Where direct approaches are not practical, incentives can be designed so that the interests of principals and agents lie in achieving the objectives of beneficiaries.

The study recommended that ADB's framework for mainstreaming participatory processes be revisited. One step might include giving purchasing power to beneficiaries by distributing available project budgets to targeted beneficiaries in the form of "development coupons"; beneficiaries would use the coupons to "pay" providers and hold them accountable.

Another step would be to promote competition among providers by allowing beneficiaries to choose providers from multiple choices—government agencies, private companies, local contractors, and nongovernment organizations.

ADB assistance could also induce providers to respond downwardly to beneficiaries by evaluating providers based on beneficiary feedback by, for example, assessing beneficiary satisfaction prior to paying contractors.

Also, ADB should align incentives for project designers to work for the best interests of the public by rewarding the quality of project design.

Additionally, ADB might align incentives for executing agencies and frontline providers by linking budgetary allocations to the realization of project objectives instead of activities or outputs.

Another option would be to contract out employment generation or poverty reduction to agents and provide them project assistance (such as project funds, access to credit, or other investments that release their key constraints) conditional on the number of jobs created, or the number of poor households exiting from poverty through the efforts of these agents.

Lastly, ADB could provide incentives for beneficiaries to treat project funds as their own funds and motivate them to demand least-cost subproject design, monitor subproject construction, and maintain the infrastructure after construction.