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Decentralization of government and contracting with the private sector

Listed author(s):
  • Darwin Cortés

    ()

    (Universidad del Rosario)

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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File URL: http://www.ieb.ub.edu/aplicacio/fitxers/2012/1/Doc2011-43.pdf
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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
Handle: RePEc:ieb:wpaper:2012/1/doc2011-43
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  1. Seabright, Paul, 1994. "Accountability and Decentralization in Government: An Incomplete Contracts Model," CEPR Discussion Papers 889, C.E.P.R. Discussion Papers.
  2. David S. Lee & David Card, 2006. "Regression Discontinuity Inference with Specification Error," NBER Technical Working Papers 0322, National Bureau of Economic Research, Inc.
  3. Oliver Hart & Andrei Shleifer & Robert W. Vishny, 1997. "The Proper Scope of Government: Theory and an Application to Prisons," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1127-1161.
  4. Aghion, Philippe & Tirole, Jean, 1994. "Formal and Real Authority in Organizations," IDEI Working Papers 37, Institut d'Économie Industrielle (IDEI), Toulouse.
  5. Joshua Angrist & Eric Bettinger & Erik Bloom & Elizabeth King & Michael Kremer, 2002. "Vouchers for private schooling in colombia: Evidence from a randomized natural experiment," Natural Field Experiments 00203, The Field Experiments Website.
  6. Miguel Urquiola & Eric Verhoogen, 2009. "Class-Size Caps, Sorting, and the Regression-Discontinuity Design," American Economic Review, American Economic Association, vol. 99(1), pages 179-215, March.
  7. 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.
  8. 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.
  9. Pranab Bardhan, 2002. "Decentralization of Governance and Development," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 185-205, Fall.
  10. Myerson, Roger B., 2006. "Federalism and Incentives for Success of Democracy," Quarterly Journal of Political Science, now publishers, vol. 1(1), pages 3-23, January.
  11. Ruben Enikolopov & Ekaterina Zhuravskaya, 2004. "Decentralization and Political Institutions," Economics Working Papers 0045, Institute for Advanced Study, School of Social Science.
  12. 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.
  13. repec:esx:essedp:597 is not listed on IDEAS
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