Better urban services: finding the right incentives by William R. Dillinger

By William R. Dillinger

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But where the impact of local government behavior is largely localized and regulation requires detailed knowledge of local conditions and priorities, central regulation is difficult to justify. In many developing countries, a relaxation of broad central regulation is called for, while more focused measures are needed to ensure local government performance in areas of national concern such as poverty alleviation and the environment. The counterpart to central regulation is local accountabilitythe reliance on local participation to regulate the behavior of those responsible for managing service delivery.

Decentralization is often cited as the solution to these problems. 1 A Typology of Decentralization Rondinelli's classic typology identifies four categories of decentralization. All represent transfers of power from central government administration. The typology distinguishes types of decentralization on the basis of the organization to which power is transferred. Deconcentration is defined as a transfer of power to local administrative offices of the central government; delegation is the transfer of power to parastatals; devolution is the transfer of power to subnational political entities; privatization is the transfer of power (and responsibility) to private entities.

Where the benefits of a service are largely confined to individual consumers, user charges are a desirable means of financing municipal services. Local taxes, in principle, are an appropriate means of financing services whose benefits, though not confined to individual consumers, nevertheless do not extend beyond the municipal boundaries. Typically, local revenue sources are limited and heavily regulated by central government. Generally speaking, local governments need more financial autonomy to perform the responsibilities they have been assigned.

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