Shared accountability and partial decentralization in local public good provision

Abstract

Recent decentralization reforms in developing countries have often lead to the coexistence of multiple tiers of government in given policy areas, triggering new accountability issues. This paper provides a novel theoretical treatment of the efficiency consequences of such ‘partial expenditure decentralization.’ It develops a political agency model in which two levels of government are involved in the provision of a local public good, with voters imperfectly informed about each government's contribution to the public good. A central result of the model is that partial decentralization is desirable only if the benefits of vertical complementarity in public good provision outweigh the costs of reduced accountability, which result from detrimental vertical strategic interactions operating through the electoral process. Through variants of the model, the interplay between decentralization and democratization is analyzed. From a positive point of view, the model predicts a relationship between electoral incentives and equilibrium decentralization.