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Accountability and Decentralization in Government: An Incomplete Contracts Model

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  • Seabright, Paul

Abstract

This paper approaches the question of the appropriate level of decentralization of power in government as a problem in the allocation of control rights under incomplete contracts. This approach is preferable to that of the literature following the Tiebout model of local public goods, which analyses the merits of the differentiation of policy by locality but has nothing to say about the decentralization of power as such. The model of this paper compares allocations of power to regional and central government as alternative means of motivating governments to act in the interests of citizens. Centralization allows benefits from policy coordination but has costs in terms of diminished accountability, which can be precisely defined as the reduced probability that the welfare of a given region can determine the re-election of the government. The model is extended to allow for conflicts of interest within regions, and for the possibility that governments may act as Leviathans appropriating resources for their own use. Conditions are derived under which a given region will be better off under central or regional government.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 889.

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Date of creation: Jan 1994
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Handle: RePEc:cpr:ceprdp:889

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Keywords: Accountability; Decentralization; Incomplete Contracts; Tiebout Model;

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  1. Hamlin, Alan P, 1991. "Decentralization, Competition and the Efficiency of Federalism," The Economic Record, The Economic Society of Australia, vol. 67(198), pages 193-204, September.
  2. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
  3. Aghion, Philippe & Bolton, Patrick, 1992. "An Incomplete Contracts Approach to Financial Contracting," Review of Economic Studies, Wiley Blackwell, vol. 59(3), pages 473-94, July.
  4. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August.
  5. Oliver Hart & John Moore, 1988. "Property Rights and the Nature of the Firm," Working papers 495, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Tirole, J., 1993. "The Internal Organization of Government," Working papers 93-11, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Bewley, Truman F, 1981. "A Critique of Tiebout's Theory of Local Public Expenditures," Econometrica, Econometric Society, vol. 49(3), pages 713-40, May.
  8. Wittman, Donald, 1989. "Why Democracies Produce Efficient Results," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1395-1424, December.
  9. repec:fth:louvco:9337 is not listed on IDEAS
  10. Besley, Timothy & Case, Anne, 1995. "Does Electoral Accountability Affect Economic Policy Choices? Evidence from Gubernatorial Term Limits," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 769-98, August.
  11. Kenneth Rogoff, 1990. "Equilibrium Political Budget Cycles," NBER Working Papers 2428, National Bureau of Economic Research, Inc.
  12. DREZE , Jacques H., 1993. "Regions of Europe : A Feasible Status, to be discussed," CORE Discussion Papers 1993037, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  13. Peltzman, Sam, 1992. "Voters as Fiscal Conservatives," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 327-61, May.
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