A Model of Central vs. Decentralized Government: Self-Interest and Mis-Allocation in Bolivia

LSE Development Studies Institute Working Paper No. 02-39

36 Pages Posted: 14 Mar 2003

See all articles by Jean-Paul Faguet

Jean-Paul Faguet

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP)

Date Written: January 19, 2003

Abstract

The recent, much remarked upon decentralization in Bolivia produced four important changes in the nation's public finances: (1) a sharp fall in the geographic concentration of investment; (2) a sea-change in the uses of investment away from infrastructure towards the social sectors; (3) a significant increase in government responsiveness to local needs; and (4) increased investment in poorer municipalities. Existing theoretical treatments of decentralization cannot account for these phenomena. This paper develops a model of government which relies on political bargaining between municipal representatives and central government agents over the allocation of public resources. By invoking central government self-interest, I can explain the Bolivian experience. Lastly I introduce the concept of residual power, which underpins the model, as key to understanding decentralization. Analyzing the location of residual power in a political system can help cut through the thicket of contradictory claims that fill the decentralization literature.

Keywords: decentralization, local government, central government, theory, participation, targeting, Bolivia

JEL Classification: D72, D73, H41, H42, H72, O18

Suggested Citation

Faguet, Jean-Paul, A Model of Central vs. Decentralized Government: Self-Interest and Mis-Allocation in Bolivia (January 19, 2003). LSE Development Studies Institute Working Paper No. 02-39, Available at SSRN: https://ssrn.com/abstract=373602 or http://dx.doi.org/10.2139/ssrn.373602

Jean-Paul Faguet (Contact Author)

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP) ( email )

Houghton Street
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United Kingdom
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+44 207 955 6844 (Fax)

HOME PAGE: http://www.lse.ac.uk/Depts/destin/faguetjp.html

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