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Decentralization of government and contracting with the private sector

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  • Darwin Cortés

    ()
    (Universidad del Rosario)

Abstract

Using a simple model of incomplete contracts to characterize the relationship between decentralization and contracting with the private sector, I show that, provided that the expected reduction in quality is low, more decentralized local governments will contract more with the private sector. Then, I use the 2001 decentralization reform in Colombia to test these ideas. Particularly important, the reform entitles more decentralized municipalities to sign subsidy contracts with private schools, and departments (a higher level of government) to do so for the less decentralized municipalities. I take advantage of the fact that the level of decentralization is decided using an exogenous population threshold to identify causal effects using Regression Discontinuity Design. The empirical results are consistent with the prediction of the model. More decentralized municipalities subsidize more students in private schools. There are no significant differences in enrolment in public schools across more and less decentralized municipalities.

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Bibliographic Info

Paper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2011/43.

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Length: 54 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:ieb:wpaper:2012/1/doc2011-43

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Related research

Keywords: Decentralization; contracts with the private sector; education reform; RDD; Colombia;

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References

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  1. Drazen, Allan & Eslava, Marcela, 2010. "Electoral manipulation via voter-friendly spending: Theory and evidence," Journal of Development Economics, Elsevier, vol. 92(1), pages 39-52, May.
  2. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Scholarly Articles 4554125, Harvard University Department of Economics.
  3. Seabright, Paul, 1994. "Accountability and Decentralization in Government: An Incomplete Contracts Model," CEPR Discussion Papers 889, C.E.P.R. Discussion Papers.
  4. Myerson, Roger B., 2006. "Federalism and Incentives for Success of Democracy," International Quarterly Journal of Political Science, now publishers, vol. 1(1), pages 3-23, January.
  5. Ruben Enikolopov & Ekaterina Zhuravskaya, 2004. "Decentralization and Political Institutions," Economics Working Papers 0045, Institute for Advanced Study, School of Social Science.
  6. Joshua Angrist & Eric Bettinger & Michael Kremer, 2006. "Long-Term Educational Consequences of Secondary School Vouchers: Evidence from Administrative Records in Colombia," American Economic Review, American Economic Association, vol. 96(3), pages 847-862, June.
  7. Hart, Oliver & Shleifer, Andrei & Vishny, Robert W, 1997. "The Proper Scope of Government: Theory and an Application to Prisons," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1127-61, November.
  8. Lee, David S. & Card, David, 2008. "Regression discontinuity inference with specification error," Journal of Econometrics, Elsevier, vol. 142(2), pages 655-674, February.
  9. Joshua Angrist & Eric Bettinger & Erik Bloom & Elizabeth King & Michael Kremer, 2002. "Vouchers for Private Schooling in Colombia: Evidence from a Randomized Natural Experiment," American Economic Review, American Economic Association, vol. 92(5), pages 1535-1558, December.
  10. Barankay, Iwan & Lockwood, Ben, 2006. "Decentralization and the Productive Efficiency of Government: Evidence from Swiss Cantons," CEPR Discussion Papers 5639, C.E.P.R. Discussion Papers.
  11. Urquiola, Miguel & Verhoogen, Eric, 2007. "Class Size and Sorting in Market Equilibrium: Theory and Evidence," IZA Discussion Papers 2963, Institute for the Study of Labor (IZA).
  12. Pranab Bardhan, 2002. "Decentralization of Governance and Development," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 185-205, Fall.
  13. Faguet, Jean-Paul, 2004. "Does decentralization increase government responsiveness to local needs?: Evidence from Bolivia," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 867-893, March.
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