Using Monte Carlo methods, we revisit the normative economic model proposed by economist Tito Cordella to understand the tensions between maximizing private financing and optimizing financing for development. To focus on his comments about the new World Bank Group Cascade Approach’s proposed sequence of interventions, we check the robustness of his main conclusions, particularly his scenarios where subsidies should be considered before reforms to maximize social welfare gains from having the private sector finance international development projects.

More generally, Cordella claims that the cascade approach might not be the optimal sequence of interventions to maximize a project’s social welfare impact because the efficiency of reforms in capturing externalities is a ‘hidden’ societal cost. Multiple scenarios exist where it would be better to first subsidize the private sector before enacting inefficient reforms that waste large portions of a project’s positive externalities to make them profitable enough to receive private sector financing.

His conclusions use a normative economic model that depends on strict independent and uniform distributional assumptions for project characteristics, these results when replicated using Monte Carlo method simulations prove robust when considering (1) non-independent distributions for project characteristics, (2) several different distribution assumptions for project characteristics, and even (3) real-world financial and economic returns data for both public and private sector World Bank Group projects.