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The decentralization of public services : lessons from the theory of the firm

Author

Listed:
  • Cremer, Jaques
  • Estache, Antonio
  • Seabright, Paul
  • DEC

Abstract

The literature on the theory of the firm is rich in theoretical and practical insights. The key messages in this overview are the following: (a) the modern theory of the firm provides many insights into political organization, for political jurisdictions can be viewed as pseudo-firms that provide services and that group together various kinds of decisionmaking activities. (b) questions about decentralization in government are questions about the allocation of control rights. If contractual relation were complete, it would not matter whether power were decentralized, as contracts would specify everything to be done at each level of government. There would be no need for discretion; (c) how much to decentralize depends on which level of government will have the most incentive to bring about desired outcomes. Centralized governments may be better at coordinating things but tend to be less accountable than decentralized governments (with important expections); and (d) the organizational design of government affects not only incentives to make decisions but also incentives to gather the information on which those decisions are based.

Suggested Citation

  • Cremer, Jaques & Estache, Antonio & Seabright, Paul & DEC, 1994. "The decentralization of public services : lessons from the theory of the firm," Policy Research Working Paper Series 1345, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1345
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    Citations

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    Cited by:

    1. Dilip Mookherjee & Pranab Bardhan, 2005. "Decentralization, Corruption And Government Accountability: An Overview," Boston University - Department of Economics - Working Papers Series WP2005-023, Boston University - Department of Economics, revised Jun 2005.
    2. Kempe Ronald Hope, 2000. "Decentralisation and local governance theory and the practice in Botswana," Development Southern Africa, Taylor & Francis Journals, vol. 17(4), pages 519-534.
    3. Eid, Florence, 2001. "Applying the decision rights to a case of hospital institutional design," Policy Research Working Paper Series 2726, The World Bank.
    4. Kim, Aehyung, 2008. "Decentralization and the provision of public services : framework and implementation," Policy Research Working Paper Series 4503, The World Bank.
    5. William D. Savedoff, 1997. "Social Services Viewed Through New Lenses: Agency Problems in Education and Health in Latin America," Research Department Publications 3017, Inter-American Development Bank, Research Department.
    6. Richard M Bird & Joosung Jun, 2005. "Earmarking in Theory and Korean Practice," International Tax Program Papers 0513, International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto.
    7. Lkhagvadorj, Ariunaa, 2010. "Fiscal Federalism and Decentralization in Mongolia," MPRA Paper 28758, University Library of Munich, Germany, revised Mar 2010.
    8. Eid, Florence, 2001. "Hospital governance and incentive design : the case of corporatized public hospitals in Lebanon," Policy Research Working Paper Series 2727, The World Bank.
    9. Ping Zhang & Eivind Tandberg & Ehtisham Ahmad, 2002. "On National or Supranational Objectives; Improving the Effectiveness of Targeted Expenditure Programs," IMF Working Papers 02/209, International Monetary Fund.

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