IDEAS home Printed from https://ideas.repec.org/p/idb/brikps/6882.html
   My bibliography  Save this paper

Shared Mandates, Moral Hazard, and Political (Mis)alignment in a Decentralized Economy

Author

Listed:
  • Estache, Antonio
  • Garsous, Grégoire
  • da Motta, Ronaldo Seroa

Abstract

This paper investigates the effects of political (mis)alignment on public service delivery when mandates are shared between state and local governments. We analyze sewage treatment policies in the state of SaÞo Paulo, Brazil. Relying on difference-in-differences estimations, we establish a causal relationship between political alignment and higher sewage treatment provision. Conceptually, we find that, with uncertain local commitment and weakly enforceable local obligations, shared mandates lead to a moral hazard issue implying service under-provision. Our results show that political alignment attenuates such moral hazard effects.

Suggested Citation

  • Estache, Antonio & Garsous, Grégoire & da Motta, Ronaldo Seroa, 2015. "Shared Mandates, Moral Hazard, and Political (Mis)alignment in a Decentralized Economy," IDB Publications (Working Papers) 6882, Inter-American Development Bank.
  • Handle: RePEc:idb:brikps:6882
    as

    Download full text from publisher

    File URL: https://publications.iadb.org/publications/english/document/Shared-Mandates-Moral-Hazard-and-Political-(Mis)alignment-in-a-Decentralized-Economy.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Blomquist, William & Giansante, Consuelo & Bhat, Anjali & Kemper, Karin, 2005. "Institutional and policy analysis of river basin management: the Gudalquivir River Basin, Spain," Policy Research Working Paper Series 3526, The World Bank.
    2. Marcelin Joanis, 2011. "The road to power: partisan loyalty and the centralized provision of local infrastructure," Public Choice, Springer, vol. 146(1), pages 117-143, January.
    3. Sjahrir, Bambang Suharnoko & Kis-Katos, Krisztina & Schulze, Günther G., 2014. "Administrative Overspending in Indonesian Districts: The Role of Local Politics," World Development, Elsevier, vol. 59(C), pages 166-183.
    4. Brueckner, Jan K., 2009. "Partial fiscal decentralization," Regional Science and Urban Economics, Elsevier, vol. 39(1), pages 23-32, January.
    5. Solé-Ollé, Albert & Sorribas-Navarro, Pilar, 2008. "The effects of partisan alignment on the allocation of intergovernmental transfers. Differences-in-differences estimates for Spain," Journal of Public Economics, Elsevier, vol. 92(12), pages 2302-2319, December.
    6. repec:oup:publus:v:48:y:2018:i:4:p:523-558. is not listed on IDEAS
    7. Wilder, Margaret & Romero Lankao, Patricia, 2006. "Paradoxes of Decentralization: Water Reform and Social Implications in Mexico," World Development, Elsevier, vol. 34(11), pages 1977-1995, November.
    8. Mario Jametti & Marcelin Joanis, 2010. "Determinants of fiscal decentralization: political economy aspects," Working Papers 2010/7, Institut d'Economia de Barcelona (IEB).
    9. Mario Jametti & Marcelin Joanis, 2010. "Determinants of fiscal decentralization: political economy aspects," Working Papers 2010/7, Institut d'Economia de Barcelona (IEB).
    10. Enikolopov, Ruben & Zhuravskaya, Ekaterina, 2007. "Decentralization and political institutions," Journal of Public Economics, Elsevier, vol. 91(11-12), pages 2261-2290, December.
    11. Hilary Sigman, 2014. "Decentralization and Environmental Quality: An International Analysis of Water Pollution Levels and Variation," Land Economics, University of Wisconsin Press, vol. 90(1), pages 114-130.
    12. Benny Geys & Jan Vermeir, 2014. "Party Cues In Elections Under Multilevel Governance: Theory And Evidence From Us States," Journal of the European Economic Association, European Economic Association, vol. 12(4), pages 1029-1058, August.
    13. Johnsson, Rosa Maria Formiga & Kemper, Karin, 2005. "Institutional and policy analysis of river basin management : the Alto-Tiete river basin, Sao Paulo, Brazil," Policy Research Working Paper Series 3650, The World Bank.
    14. Pierpaolo Battigalli & Giovanni Maggi, 2002. "Rigidity, Discretion, and the Costs of Writing Contracts," American Economic Review, American Economic Association, vol. 92(4), pages 798-817, September.
    15. Faguet, Jean-Paul, 2014. "Decentralization and Governance," World Development, Elsevier, vol. 53(C), pages 2-13.
    16. Koleman S. Strumpf & Felix Oberholzer-Gee, 2002. "Endogenous Policy Decentralization: Testing the Central Tenet of Economic Federalism," Journal of Political Economy, University of Chicago Press, vol. 110(1), pages 1-36, February.
    17. Cremer, Jacques & Palfrey, Thomas R., 1996. "In or out?: Centralization by majority vote," European Economic Review, Elsevier, vol. 40(1), pages 43-60, January.
    18. Raúl A Ponce-Rodríguez & Charles R Hankla & Jorge Martinez-Vazquez & Eunice Heredia-Ortiz, 2018. "Rethinking the Political Economy of Decentralization: How Elections and Parties Shape the Provision of Local Public Goods," Publius: The Journal of Federalism, Oxford University Press, vol. 48(4), pages 523-558.
    19. repec:cup:apsrev:v:106:y:2012:i:04:p:742-761_00 is not listed on IDEAS
    20. Bednar,Jenna, 2009. "The Robust Federation," Cambridge Books, Cambridge University Press, number 9780521703963, July - De.
    21. Bednar,Jenna, 2009. "The Robust Federation," Cambridge Books, Cambridge University Press, number 9780521878999, July - De.
    22. Lee, David S., 2008. "Randomized experiments from non-random selection in U.S. House elections," Journal of Econometrics, Elsevier, vol. 142(2), pages 675-697, February.
    23. Jean Tirole, 1999. "Incomplete Contracts: Where Do We Stand?," Econometrica, Econometric Society, vol. 67(4), pages 741-782, July.
    24. Per Pettersson-Lidbom, 2008. "Do Parties Matter for Economic Outcomes? A Regression-Discontinuity Approach," Journal of the European Economic Association, MIT Press, vol. 6(5), pages 1037-1056, September.
    25. Sigman, Hilary, 2005. "Transboundary spillovers and decentralization of environmental policies," Journal of Environmental Economics and Management, Elsevier, vol. 50(1), pages 82-101, July.
    26. Hilary Sigman, 2002. "International Spillovers and Water Quality in Rivers: Do Countries Free Ride?," American Economic Review, American Economic Association, vol. 92(4), pages 1152-1159, September.
    27. Marta Curto-Grau (Universitat de Barcelona) & Albert Sole-Olle (Universitat de Barcelona) & Pilar Sorribas-Navarro(Universitat de Barcelona), 2012. "Partisan targeting of inter-governmental transfers & state interference in local elections: evidence from Spain," Working Papers in Economics 288, Universitat de Barcelona. Espai de Recerca en Economia.
    28. Batterbury, Simon P.J. & Fernando, Jude L., 2006. "Rescaling Governance and the Impacts of Political and Environmental Decentralization: An Introduction," World Development, Elsevier, vol. 34(11), pages 1851-1863, November.
    29. Kalirajan, Kaliappa & Otsuka, Keijiro, 2012. "Fiscal Decentralization and Development Outcomes in India: An Exploratory Analysis," World Development, Elsevier, vol. 40(8), pages 1511-1521.
    30. Melissa Dell, 2015. "Trafficking Networks and the Mexican Drug War," American Economic Review, American Economic Association, vol. 105(6), pages 1738-1779, June.
    31. Brollo, Fernanda & Nannicini, Tommaso, 2012. "Tying Your Enemy's Hands in Close Races: The Politics of Federal Transfers in Brazil," American Political Science Review, Cambridge University Press, vol. 106(04), pages 742-761, November.
    32. Weingast, Barry R., 2014. "Second Generation Fiscal Federalism: Political Aspects of Decentralization and Economic Development," World Development, Elsevier, vol. 53(C), pages 14-25.
    33. Dilip Mookherjee, 2015. "Political Decentralization," Annual Review of Economics, Annual Reviews, vol. 7(1), pages 231-249, August.
    34. Marcelin Joanis, 2008. "Intertwined Federalism: Accountability Problems under Partial Decentralization," Cahiers de recherche 08-22, Departement d'Economique de l'École de gestion à l'Université de Sherbrooke.
    35. Claudio Ferraz & Frederico Finan, 2011. "Electoral Accountability and Corruption: Evidence from the Audits of Local Governments," American Economic Review, American Economic Association, vol. 101(4), pages 1274-1311, June.
    36. Bhat, Anjali & Ramu, Kikkeri & Kemper, Karin, 2005. "Institutional and policy analysis of river basin management: the Brantas river basin, East Java, Indonesia," Policy Research Working Paper Series 3611, The World Bank.
    37. Besley, Timothy & Coate, Stephen, 2003. "Centralized versus decentralized provision of local public goods: a political economy approach," Journal of Public Economics, Elsevier, vol. 87(12), pages 2611-2637, December.
    38. Marta Curto-Grau (Universitat de Barcelona) & Albert Sole-Olle (Universitat de Barcelona) & Pilar Sorribas-Navarro(Universitat de Barcelona), 2012. "Partisan targeting of inter-governmental transfers & state interference in local elections: evidence from Spain," Working Papers in Economics 288, Universitat de Barcelona. Espai de Recerca en Economia.
    39. Joanis, Marcelin, 2014. "Shared accountability and partial decentralization in local public good provision," Journal of Development Economics, Elsevier, vol. 107(C), pages 28-37.
    40. Arze del Granado, F. Javier & Martinez-Vazquez, Jorge & McNab, Robert M., 2012. "Decentralized Governance and Preferences for Public Goods," MPRA Paper 42459, University Library of Munich, Germany.
    41. Seroa da Motta, Ronaldo & Moreira, Ajax, 2006. "Efficiency and regulation in the sanitation sector in Brazil," Utilities Policy, Elsevier, vol. 14(3), pages 185-195, September.
    42. Blomquist, William & Ballestero, Maureen & Bhat, Anjali & Kemper, Karin, 2005. "Institutional and policy analysis of river basin management: the tarcoles river basin, Costa Rica," Policy Research Working Paper Series 3612, The World Bank.
    43. Johnsson, Rosa Maria Formiga & Kemper, Karin, 2005. "Institutional and policy analysis of river basin management : the Jaguaribe river basin, Ceara, Brazil," Policy Research Working Paper Series 3649, The World Bank.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Morgane De Halleux & Antonio Estache, 2018. "How “smart” are Latin American cities?," Working Papers ECARES 2018-05, ULB -- Universite Libre de Bruxelles.
    2. Marco Catola, 2019. "Partial decentralisation and inter-governmental electoral competition in local public good provision," Discussion Papers 2019/243, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    3. Antonio Estache, 2016. "Institutions for Infrastructure in Developing Countries: What We Know and the Lot We still Need to Know," Working Papers ECARES ECARES 2016-27, ULB -- Universite Libre de Bruxelles.
    4. Camos Daurella,Daniel & Estache,Antonio, 2017. "Regulating water and sanitation network services accounting for institutional and informational constraints," Policy Research Working Paper Series 8149, The World Bank.

    More about this item

    Keywords

    Infrastructure provision; Water and sanitary services; Moral; Political alignment;

    JEL classification:

    • H40 - Public Economics - - Publicly Provided Goods - - - General
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • P48 - Economic Systems - - Other Economic Systems - - - Political Economy; Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:idb:brikps:6882. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Felipe Herrera Library). General contact details of provider: http://edirc.repec.org/data/iadbbus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.