Decentralizing Development: Allocating Public Goods Via Competition

60 Pages Posted: 25 Jan 2007

See all articles by Larry W. Chavis

Larry W. Chavis

University of North Carolina (UNC) at Chapel Hill - Entrepreneurial Program

Date Written: August 2006

Abstract

Decentralizing the allocation of public goods by giving funds directly to communities takes advantage of local information concerning needs, but decreases the accountability over how funds are used; leaving funds open to misuse or capture by local elites. In Indonesia, the World Bank attempts to overcome this downside of decentralized allocation by having communities compete locally for block grants. Competition weeds out less efficient projects. Increasing the number of villages bidding by 10% leads to a 1.8% decline in road construction costs. Microcredit gives a measure of the diversion of funds, since in the initial phase of this program microcredit involved little monitoring and low repayment rates. Competition reduces the funds allocated to microcredit. Hence competition between localities for development funds has a significant impact on efficiency. Similarly, increased community participation in project planning and in the allocation of funding leads to better outcomes.

Keywords: Community Driven Development, Rural Development, Corruption, World Bank, Competition

JEL Classification: H41, O12, O19, O22

Suggested Citation

Chavis, Larry W., Decentralizing Development: Allocating Public Goods Via Competition (August 2006). Available at SSRN: https://ssrn.com/abstract=959272 or http://dx.doi.org/10.2139/ssrn.959272

Larry W. Chavis (Contact Author)

University of North Carolina (UNC) at Chapel Hill - Entrepreneurial Program ( email )

Chapel Hill, NC
United States
919-962-8215 (Phone)
919-962-7186 (Fax)

HOME PAGE: http://www.unc.edu/~chavisl

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