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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. 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.
  2. repec:esx:essedp:597 is not listed on IDEAS
  3. Aghion, Philippe & Tirole, Jean, 1994. "Formal and Real Authority in Organizations," IDEI Working Papers 37, Institut d'Économie Industrielle (IDEI), Toulouse.
  4. Enikolopov, Ruben & Zhuravskaya, Ekaterina, 2003. "Decentralization and Political Institutions," CEPR Discussion Papers 3857, C.E.P.R. Discussion Papers.
  5. 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.
  6. Oliver Hart & Andrei Shleifer & Robert Vishny, 1996. "The Proper Scope of Government: Theory and an Application to Prisons," Harvard Institute of Economic Research Working Papers 1778, Harvard - Institute of Economic Research.
  7. 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.
  8. 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.
  9. 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.
  10. 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.
  11. Lee, David S. & Card, David, 2008. "Regression discontinuity inference with specification error," Journal of Econometrics, Elsevier, vol. 142(2), pages 655-674, February.
  12. Pranab Bardhan, 2002. "Decentralization of Governance and Development," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 185-205, Fall.
  13. repec:hrv:faseco:30727607 is not listed on IDEAS
  14. Seabright, Paul, 1996. "Accountability and decentralisation in government: An incomplete contracts model," European Economic Review, Elsevier, vol. 40(1), pages 61-89, January.
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