Social and Environmental Crediting: An ImpactsBased Strategy for Efficient and Sustainable Development Funding Robert Van Buskirk and Benjamin P. Eifert 1 This draft: August 14, 2008 Abstract This paper describes the notion of development credits generated by verified social and environmental impacts in much in the same way that carbon credits are generated by verified reductions in carbon emissions. In this approach to development financing, donors set prices for credible evidence of progress towards specific goals like improved standards of living, reduced disease burdens or improved environmental conditions in poor countries. This generates a direct link between resource flows and clear scientific evidence, generated by independent rigorous evaluations and audited output statements, of the incremental impacts of programs run by NGOs, governments, communities and businesses. To give an example, an NGO running an anti‐malaria program that directly resulted in an estimated ten thousand fewer Nigerian children dying from malaria would earn development credits valued at ten thousand times the current price offered by donors for saving a child’s life. The most ambitious version of this approach is a global market for credits generated by verified development impacts, allowing the most effective organizations and programs to finance their operations through impersonal market mechanisms that measure and reward performance. A development credits system would bring important advantages, including shifts in the allocation of development finance towards more cost‐effective programs and organizations, stronger incentives for innovation and for good management, less centralization, reduced transactions costs, and ultimately more impact for each dollar spent. However, such a system, especially in its most ambitious form, requires a strong institutional framework capable of providing credible and transparent information about program impacts, efficient prices for impacts, fraud deterrence and mitigation of unintended negative consequences and perverse incentives. This paper examines these advantages and challenges in the hope of generating a constructive policy dialogue. 1 Lawrence Berkeley Labs and Department of Economics, University of California, Berkeley.