This paper assesses the impact on local government budget of the rearrangement of central-local fiscal relationship under proposal in Japan, or the so-called Trinity Reform, where it is proposed that some of the tax base be handed from the central to the local governments, in conjunction with drastic cut in both transfer of the tax revenue and a collection of subsidies. The tool used for this objective is the Nagoya City University Econometric Model (NCUEi 2003) whose core system has been duly modified to simulate proposals, and also to investigate the performance of the local economy under the strain of declining and aging population. The object case taken up in this paper is Nagoya City.The model is characterized by the market adjustment of the regional total demandsupply balance, where the age distribution of the population is incorporated so as to assess the impact of the demographic change both on the total demand and productive capacity. The forecast and simulations show that while the abovementioned Reform generates persistent unfavorable impact to the local government, the dominant negative impact comes from the demographic change, in terms of the primary balance of Nagoya City. Unless proper measures are to be taken, the simulations indicate, the local government's fiscal soundness will hardly be maintained under the two major pressures, one from the fiscal decentralization as represented in the subsidy cut-cum-tax base transfer and the other from the demographic change. The simulation of the abovementioned reform reveals that it definitely worsens the primary balance of the locality, and implies that practically an additional transfer of consumption tax must accompany this reform, even for one of the most favorable localities like Nagoya where its major industrial sectors, or the automobile-industry-led industries in this case, are steadily growing. The implication will be obvious for localities where economy is less favorable.
The introduction of user-payment for health services is frequently followed by concern about the impact on equity of access for poor people. Decentralizing governments often try to remedy the created inequities by putting in place safety nets in the form of exemptions and waivers in the user-fee systems. However, where user payments merely operate as local government strategies for health financing, without national policy they are likely to be self-defeating, as local governments are frequently more interested in raising revenue to meet recurrent costs of devolved services than in promoting equity. Thus guidelines put in place by the central government to operationalize safety nets are seen by local governments as being contradictory to this goal, and are thus ignored or altered to suit the district revenue aims. This study was carried out to investigate the context and the constraints in implementing exemption schemes. Data were collected in two selected administrative districts of Uganda (Mbarara and Mukono). Qualitative approaches to data collection were adopted, namely focus group discussions and key informant interviews with policy-makers, health administrators, service providers and community members. These methods were combined with document review. We found little evidence of safety-net guidelines initiated by decentralized/local governments, since district local governments had little motivation to extend exemptions, waivers or credits. The conclusion is that safety nets such as waivers and exemptions will only be effective if they are backed by a national health financing policy, they reconcile the often competing demands of local government revenue needs, and are strictly enforced and supervised by both the local and central governments. The implications of the findings for remedying the tension between the needs for cost recovery and for attainment of equity goals through exemption policies for the poor and indigent are discussed.
Decentralization is commonly championed as a means for achieving equity. To date, however, there has been little discussion of the mechanisms underlying this relationship, and several of the few empirical investigations that have addressed the topic have found the converse; that decentralization has exacerbated inequalities. This article examines the performance and equity in financing of the Honduras Ministry of Health's (MOH) decentralized user fee system. The MOH of Honduras established a national user fee policy in 1989. It provided a framework of rules and regulations and decentralized administration of the system to the regional offices. A survey conducted under the auspices of this study provided detailed information about the structures and operations of MOH user fee systems. The survey revealed that the systems vary markedly by region, creating horizontal inequities, and that they have numerous other shortcomings. The average price of a consultation is low, US dollars 0.16, and revenues have consistently equalled just 2% of MOH expenditures. The systems' administrative costs are equal to 67% of their revenues. Eliminating the user fee systems in all but the national and regional hospitals would actually save money and/or enable the MOH to provide more care. Average consultation prices are highest in health posts, intermediate in centres and lowest in the national hospitals, thereby encouraging the inappropriate use of the MOH's pyramidal referral system and fostering MOH inefficiency. Fee levels and exemption practices are horizontally and vertically inequitable. The likelihood of paying for an ambulatory visit is highest at a health post, 89%, and lowest at a hospital, 49%. Individuals from the poorest one-fifth of households are the most likely to have to pay for care. Honduras' experience demonstrates that a decentralized user fee system is not necessarily equitable, and that, more generally, the gains that can be realized from decentralizing user fee systems are not automatic. They must be anticipated, planned for and cultivated by a well-designed and well-implemented initiative that is not a single, one-time event, but rather a dynamic, on-going enterprise.
Most economists agree that new investments in highways at this point in time in the United States have little impact on overall growth in output. New highways play a more important role in shifting economic activities among places, drawing jobs from other locations into the highway corridors, a phenomenon known as negative spillovers. The objective of this dissertation is two-fold, to examine the proposal to decentralize highway finance, which aims to solve the financial responsibility mismatch problem that stems from economic spillovers of highways, and to test the hypothesis of economic spillovers of highway investment at the metropolitan level. First, to better understand how spillovers influence the highway investment decision, the theoretical framework from the interjurisdictional tax competition literature is borrowed to model governments' investment behaviors. Numerical simulations show that decentralized local governments, which independently maximize output in their own jurisdiction, may engage in wasteful investments in highways with the presence of spillovers. Second, to shed more light on the spatial detail of economic spillovers, empirical tests of the spillover hypothesis are conducted at the metropolitan level, with census tracts as the unit of observation. The results of the quasi-experiment reveal census tract employment growth patterns that confirm the existence of negative spillovers caused by the opening of the Interstate 105 in 1993. The benefiting area, which grew substantially after the highway was opened, is limited to a long narrow corridor around the highway, while nearby locations outside the corridor experienced slow growth relative to the rest of the metropolitan area after controlling for various factors. Together, these results suggest that although negative spillovers are present at the metropolitan level, decentralizing highway finance may not be an effective policy to deal with the financial responsibility mismatch problem. Highway finance should remain centralized within metropolitan areas, and regional governing bodies should pay special attention to the distributional impact of highway projects.
Vertical fiscal imbalance, decentralized responsibility of spending with centralized financing, creates a common pool problem with spending pressure towards central funds. A model of decentralized government spending under vertical fiscal imbalance is developed, and the importance of national political characteristics for internalization of costs and spending level is investigated in an econometric analysis of Norway during 1880–1990. We argue that in a parliamentary democracy, the internalization of costs is influenced by the party fragmentation of parliament. This is confirmed by the econometric analysis using a Herfindahl index as a measure of fragmentation and political strength.
Social assistance as the technique providing means-tested income guaranteed financed by general taxation in Spain is composed by different benefits. There is not a only one policy, but different measures oriented to different groups of population and organised by different public administrations. During the last two decades, the different levels of public administration have implemented a set of benefits, which observed together can considered as the Spanish ‘safety net’. The main lines of this development has been: a) fragmented in different protection systems (unemployment, pensions, social services), b) subsidiary of the development of these systems and c) decentralized in different levels of public administration (mainly in regional level, i.e. Autonomous Communities).
This paper studies optimal earnings taxation in a three period life cycle model where the taxes raised to finance an exogenous amount of public expenditure are allowed to be differentiated across ages. Agents choose their level of education when young and their age of retirement when old. We first look at the problem of optimal taxation when the young can borrow and then turn to the case where young face borrowing constraints. It is shown that, without borrowing constraints, a first best optimum can be decentralized by setting a zero tax rate in the third period and a first period tax lower than the second one.\nWith the borrowing constraint, the government may not be able restore intertemporal efficiency in which case a zero tax rate when old may not be optimal.
An optimal linear world income tax that maximizes a border-neutral social welfare function provides a drastic reduction in world consumption inequality, dropping the Gini coefficient from 0.69 to 0.25. In contrast, an optimal decentralized (i.e., within countries) redistribution has a miniscule effect on world income inequality. Thus, the traditional public finance concern about the excess burden of redistribution cannot explain why there is so little world redistribution.
Bob Searle, Jun Ma, Stefano Piperno, Ehtisham Ahmad
Intergovernmental equalization grants have been described as “the glue that holds a nation together.” Getting the grants system right is critical to countries as they decentralize. This paper illustrates general principles with an example based on Indonesia in 2000. A general grant should be used to supplement own revenues and to finance local service provision where there are no central mandates. The special needs of backward regions would be better provided for by specific grants. Specific grants need to be taken into account in the general grants scheme.
Carlos Centeno, S. Hernansanz, Luis Alberto Flores, Álvaro Sanz Rubiales · 5 authors
Abstract This chapter offers an in-depth look at health politics and the tax-financed, universal health system in Spain. It traces the development of the Spanish healthcare system, focusing in particular on its double transition in the 1980s and 1990s from a centralized social insurance system, mostly funded through workers’ and employers’ contributions, to a decentralized universal model financed by general taxation. The new national health system aimed at covering all residents and transferred healthcare competences to the regions, i.e. the seventeen Autonomous Communities, a process completed in 2001. Key issues include rationalization, harmonization, and territorial equity-building of the decentralized healthcare system; efficiency improvement through the introduction of private management elements; and cost containment to bolster the system’s financial sustainability in the context of growing demand and scarce resources. As the chapter argues, these challenges along with the remarkable changes in the political party system have increased the political salience of healthcare in public debate in the 2010s, but the prospects for developing consensual healthcare policies have worsened, such that structural problems are likely to persist.
Abstract. This paper examines the process of mass democracy as the fundamental cause of transfer seeking and the centralization of governance, using Austrian-school theory and methodology such as decentralized knowledge, disaggregated phenomena, and the structure of capital goods. The alternative of decentralized, small-group gov-ernance reduces the demand for campaign financing and makes more effective use of decentralized knowledge. In addition, when public revenues originate in the local districts and are passed on to higher levels of governance, it provides incentives for revenue sources which do not have an excess burden on production. The governance struc-ture of cellular, bottom-up, multi-level voting, with public revenue flowing up from the lower to the upper levels, provides a contrast for a comparative systems analysis that can yield insight into the transfer seeking endemic in mass democracy.
In the course of the present transition in Russian society, a new system of social security has been developed. The previous Soviet system has been replaced by a system of four more or less independent social funds, covering the main branches of social security. These funds are supposed to be run according to insurance principles and to be financed by contributions, mainly from employers. Given the difficult economic and social situation of the country, there have been increasing demands for effectiveness in the management of the different funds and also in the management of the whole social security system. The results of this study show that the social funds have developed different organizational structures with different degrees of centralization and decentralization. Only one of the funds seems to be relatively well‐functioning and effective, while the others have experienced more or less serious problems in fulfilling their main tasks and functions. The most serious problems, however, seem to stem from the structure of the social security system as a whole, which is perceived as fragmented and badly coordinated. In order to improve the coordination of the system, there have been proposals to merge two or more funds into a unified social security organization. This strategy is open to question, however, since it would increase the bureaucracy of the system. There are other ways in which the structure of the social security system might be advanced. Such developments should be based on an analysis of the system from the perspective of the individual client or patient.
We provide a model incorporating features of local public finance in Japan, including close fiscal ties between different levels of government as well as bureaucratic determinations of intergovernmental transfers. The discretionary nature of transfers softens local budgets ex post, which exerts perverse incentive effects on local governments ex ante. Fiscal decentralization that assigns more revenue responsibility to the local level serves to counteract this moral hazard incentive. The emphasis is on the endogenous nature of regional fiscal capacities at the local level. Fiscal devolution motivates local jurisdictions to become fiscally independent wherever possible.
Since Cuba began to decentralize its foreign trade and allow foreign investment, European companies have been its principal economic partner. They provide a large proportion of the products, the financing and the technology which the country requires and generate a very large proportion of the income from exports and tax revenues. Their commitment to the development of the island is a long term one since they wish to continue to help it to integrate itself with the rest of the world and to modernize its system of production. In this commitment and objective, the Embassies of the Member States of the European Union support them as a demonstration of our Government's interest in Cuba and in its future.
The paper has two parts: in the first one, economic aspect of regionalization is considered, in the second a financial one. Regionalization, like every type of decentralization, represents a serious reform of a state and brings upon several expected as well as unexpected although significant effects on political, social, and economic life. Its goal is an improvement of political, social, and economic functions of a state, not their deterioration. Unfortunately, experience of other countries does not support overwhelming optimism. Most frequently, regionalization is done due to political considerations; economic considerations are of secondary importance or even neglected. Such a dominance of political reasoning neglects fundamental principles and arguments of the economic science, standards of rational approach to decentralization, and even economic efficiency and equality between citizens. Because of that, the emphasis in this paper is on economic and financial aspects of regionalization in Serbia. In the first part the author explores economic aspects of regionalization; four state functions (regulation, stabilization, redistribution, and allocation) in decentralized setting; relations between regionalization, deregulation, and privatization; vertical distribution of functions (exclusive functions by the state, exclusive functions by regions, shared functions). After that he explores advantages of the selected model of creating regions and distribution of authorities in Serbia, particularly economic authorities of regions (1. land planning, urban land use, housing; 2. development and maintenance of infrastructure of regional importance and coordination of public utilities in municipalities; 3. agriculture; 4. tourism; 5. forestry 6. hunting and fishing; 7. vocational training and employment; 8. ecology; 9. public works). Separate section is devoted to social protection (financial transfers and institutions). In the second part of the paper (Financing the Regions) the author first examines certain issues in principle (fiscal revenues, vertical and horizontal balance, debts and moral hazard) and then considers topics of financing regions in Serbia, such as revenues subsidies, and debts.
The objective of this article is to discuss alternatives to finance investments by municipalities. In general, current revenues are insufficient to finance large investments, what brings about the necessity of municipal indebtedness. These could assume different manners, according to the nature of the investment: if it is typically public or if it offers private return. For the first case, we discuss the possibilities of a municipal bond market and, for the second, we discuss project finance and the participation of the private sector.
David S. McCauley, Robert Bruce Anderson, Richard L. Bowen, Ibrahim Elassiouty · 6 authors
Egypt seems to be on the brink of a new era in water management. The country suppose to follow a different operational mode that is “water conservation oriented, decentralized, environmentally sensitive, private sector oriented, equitable and operationally efficient” The focus of this study was on market-based instruments (MBI’s) as complements to traditional command and control measures for managing water quantity and quality. Prior to evaluating potential water MBIs, it was necessary to identify the water management problems and challenges that need to be addressed through policy adjustments. \nThese challenges were threat of water shortages, service delivery in municipal water supply, lake Nasser pollution, Irrigation service delivery challenges, Nile River pollution above Cairo, Insufficient irrigation system upkeep, water pollution in the Nile Delta, Pollution of lakes , low user contribution to irrigation system upkeep, groundwater contamination, and Weak attention to in-stream flows. \nSuch challenges have impacts on: (1) Nonrenewable groundwater management, (2) Adverse effects on human health, (3) Subsidies affecting water use efficiency, (4) Reduced agricultural productivity, (5) Rainfall capture and flash flood protection. The impacts generated some Threats to aquatic ecosystems, particularly, Negative consequences of rising water tables and Negative impacts on aesthetics (incl. tourism) \nA two-step screening process was developed and utilized to evaluate the likely success of alternative market-based policy instruments in response to one or more of water management challenges. The instruments were screened based on economic efficiency and equity and other economic factors relating to the nature of the instrument itself. They also were evaluated based on criteria that considered the specific social, cultural, political, and institutional context in which the instrument will be applied. \nThereon, the study explored the applicability of economic instruments to help address Egypt’s current water management challenges. It resulted in an initial evaluation of twenty instruments that seemed most promising. Screening criteria were developed and applied to assess the merits of each, and direction also was received from nearly 60 participants who attended the study’s concluding Workshop on Economic Incentives for Water. The most promising policy instruments that concluded from the study were: \nWoith respect to the water quantity management deemed of highest priority for follow-up analysis and possible policy action were: Groundwater Extraction Charges, Tariff Reductions for Imported Water Meters and Water Conserving Equipment, Several other measures were identified as warranting careful further analysis. These include area-based irrigation service charges; volumetric water delivery charges for large agricultural enterprises; and increased user fees for the supply of urban and industrial water services. \nLikewise, the most promising policy measures identified to address water quality \nproblems were: Increased User Fees for Wastewater Treatment, Increased Subsidies to Finance Wastewater Treatment Facilities, Subsidized Rural Sanitation, and Subsidized Pollution Control Equipment \nTo achieve such model four approaches to positive change have been identified. These include Creating incentives and disincentives for water management to protect its quality. In addition to Institutionalizing the role private participation; environmental protection and identifying mechanisms to ensure appropriate benefits for participating private sector partners, decentralizing decision making, institutionalizing environmental protection, changing the role of government and improving personnel policies at macro-level decision making regarding uses of the Nile River, and improving awareness of water resources and associated environmental issues.
During the past decade, many countries throughout the world have attempted to improve their generally poor performance record of agency-managed irrigation systems by designing and implementing institutional policy programs. This thesis analyses the institutional viability and the local impact on irrigation performance of two such institutional intervention programs. This is done in the context of the Alto Río Lerma irrigation district (ARLID), a large-scale irrigation system with a command area of more than 112,000 hectares located in the State of Guanajuato, Central Mexico. The central notion that runs through this study is the recognition that new institutional arrangements do not necessarily follow institutional design principles and top-down directives from policy makers and government interveners, but rather are created in a process of local negotiation between water users, farmer leaders and irrigation managers. This requires detailed observations on local practices, strategies and interactions on how users, leaders and managers cope with building and transforming irrigation institutions.The first intervention program analyzed in this thesis aims to transfer management responsibilities from the irrigation agency (CNA) to local newly established water user organizations (WUAs) and to make them responsible for cost-recovery. The neoliberal belief behind this program is that greater farmer involvement in irrigation management and financing would eventually lead to a reduction in public investments in irrigated agriculture as well as to higher levels of irrigation performance. The second institutional intervention program that is analyzed in this thesis deals with the introduction of water markets, aiming at re-allocating water use to uses of higher economic value. Both intervention programs clearly embark on the 'less state, more market' approach to design and implement institutional arrangements for more use and cost-effective management of scarce resources such as water and funds. The central theme of this thesis is to study how water users and local water managers deal with the problems that result from these interventions and arrangements.In 1992, ARLID was one of the first of Mexican districts were irrigation management transfer (IMT) was introduced. The Mexican IMT program is worldwide considered to be the most successful and ambitious institutional programs in its kind, both because of its scale and the speed with which the policy was designed and implemented. The claims on the successes of these and similar programs are generally ideologically driven, and empirical evidence to support the policy claim that these institutional interventions have achieved these goals remain largely undocumented. This thesis fills some of this empirical void.This thesis comprises ten chapters. After the conceptual and methodological introduction in chapter 1, two contextual chapters follow. Chapter 2 introduces the research site, and chapter 3 presents the political economic history and context in which the institutional interventions took place. Chapter 4 to 9 provide the empirical data from the intensive case study in ARLID. Chapter 10 evaluates the main empirical, conceptual and methodological findings and discusses possible implications for policy and research orientations.The first chapter provides a review of the conceptual approaches and methodologies used to study the viability of new institutional arrangements in the context of market-oriented reforms. This thesis explores the kind of conditions, processes and mechanisms that help to create viable institutions. These mechanisms do not only refer to institutional and economic relationships, but also to the relationship between institutions, and water scarcity and irrigation technology. In that sense the thesis follows the notion that irrigation technology is a sociotechnical phenomenon, with institutional requirements for use.A key concept used for analyzing the viability of new irrigation institutions is accountability. This study shows that four forms of accountability can be separated: operational, financial, political and administrative accountability. Studying these forms of accountability (and the relationship between them ) demonstrates that practices and strategies of decision making in water management are only partly influenced by rational choice and (economic) incentives for utility maximization. They are also influenced by socio-political factors.The methodological concern of this thesis is to develop a set of tools and indicators that help to assess the impacts of institutional interventions, both in terms of changes in irrigation performance levels, and in qualitative terms of processes of institutional viability. Two sets of performance indicators are presented. The first set comprises indicators that measure actual performance against set performance targets. The second set compares performance levels over time and across different system levels. The field work for this thesis comprised a wide set of methods and research techniques, ranging from intensive observations of practices and strategies for coping with the new institutional arrangements, to daily measurements of water flows in two selected WUA areas and several canals and fields in the irrigation district. Field research took place during the period from early 1995 to mid-1998.Chapter 2 provides background information on the location, history, water availability and layout of ARLID. It also introduces the two main groups of farmers that now jointly are organized in the new WUA: ejidatarios and private growers. It shows how these two groups have historically and economically been separated for almost 70 years. The chapter also provides a brief description of the Cortazar and Salvatierra module areas, their canals and WUAs that were selected for the intensive case study.Two important notions form the basis of the chapter 3, in which a detailed description of the historical and political economic context of IMT and water marketing is given. The first notion is that the legitimization for institutional interventions should be viewed in the political economic context of privatizing the Mexican country-side through dramatic constitutional revisions in the way distribution of land and water rights are organized. These reforms and revisions were started in the 1980 as a result of both a political and an economic crisis and were accompanied by wave of programs on the liberalization, decentralization and technocratization of the economy. Institutional intervention programs like the Mexican IMT program do not come on their own, but are preceded, accompanied and followed by other intervention programs that share the same neoliberal legitimization for restructuring the political and economic control over resources. The second notion is that to achieve the economic goals of these neolibral programs, the Salinas and subsequent administrations needed intervention policies such as IMT and water marketing as these would help to recover costs from the users. However, to improve greater involvement of farmers in water management, neoliberal programs are not a necessity.Chapter 4 shows how IMT and water markets were implemented, both at the national level and in ARLID. The IMT program is a typical example of institutional engineering, comprising detailed prescriptions on institutional design and a top-down approach for implementing these designs. Yet, farmers and local managers do not fully disregard these proposed arrangements. Rather than using them as prescriptive dictates, the new principles and arrangements served as a strategic starting point for the WUAs for negotiating irrigation fee levels, water marketing, mode of user representation, maintenance programs, and redistribution of O&M responsibilities between the WUAs and CNA. Local recipients have partly adopted and accommodated the new institutional arrangements. The IMT program allowed local irrigation managers, new leaders of WUAs and farmers to jointly create room and institutional flexibility to alter the proposed arrangements. This was made possible mainly because from the initial stage of implementation, CNA officials in ARLID have shown to users that they are credible and willing to share knowledge and information in a transparent way. Credibility, transparency, institutional flexibility and probity were among the most important factors to explain how operational accountability from CNA to WUAs, and from WUAs to water users, was earned in a continuous process of negotiating institutional arrangements. Furthermore, given the wider set of market-oriented reforms and constitutional revisions that farmers had become familiar with, they realized that they could hardly resist IMT.Chapter 5 provides a detailed analysis of practices, results and operational accountability for local water management. It demonstrates that official post-transfer arrangements for O&M in ARLID do not always reflect actual irrigation practices. As result, outputs of these practices in terms of relative water supply and land and water productivity remained unchanged after IMT. The main reason for this is the conflict in forms of accountability, which could not be resolved under the new institutional arrangements. Rather than adhering to new principles of using water as an economic good, farmers and local managers adhered to pre-IMT arrangements and practices of distributing water. Daily measurements of water flows and observation of irrigation practices revealed that ditch tenders (who are now employed by the WUAs) generally report planned water deliveries rather than actually supplied volumes. In that sense, they continued the practice of being administratively accountable to both users and CNA. This runs counter to the idea of encouraging efficient water use through water pricing and cost-recovery and hence being both financially and operationally accountable. Com
This project provides an evaluation and analysis of the Education Financing and Management Reform Project. Among the few larger-scope reform projects designed for more expansive changes in the education system of Armenia, Education Financing and Management Reform Project is the most Important, in terms of both its financial aspects and the scale of targeted changes. The project provides an evaluation and analysis of the Education Financing Management Reform Project from two points of view: the choice of textbook and publication/provision and achieving successful decentralization of schools. It will also try to find out to what extent the proposed changes match the general development of the country, thus evaluating the chances of success also from this aspect. With a rather pessimistic attitude regarding the effectiveness of the project, the two project questions will be put in the negative: (i) why is this project irrelevant for achieving improvement of the quality of the general education system in Armenia? and (ii) why this project cannot achieve its concrete goals - improved textbook publication and provision and successful school decentralization? The project comprises of two chapters, each of which covers one of the two questions stated above. The first chapter provides an analysis of the textbook and decentralization components as tools for quality improvement in the general education system. The second chapter analyzes the actual chances of the project to achieve its concrete objectives - successful textbook publication and provision, and school decentralization. For avoiding complication and setting a logical line of analysis, each of the chapters is divided into several sections (some of these having also subsections).
This paper investigates a model where a decentralized manager gathers private information about the profitability of an investment project that must be financed internally. The choice of information acquisition effort depends on a tradeoff between her expected marginal information rent and the associated private effort cost. Expected information rents are higher if asymmetric information arises endogenously rather than being exogenous. Therefore, the manager puts in too much information-gathering effort and headquarters reacts with a sharp rationing of capital. Monitoring the manager's information acquisition mitigates underinvestment but even increases the manager's information gathering activity. Finally, efficiency unambiguously rises if headquarters can commit to an investment budget before the manager gathers the information.
T he National Education Program states that creating distance between private and public education is not its intention, nevertheless, the scheme it has adopted, inherited from previous governments, discriminates private higher education and has monopolized education surveillance through the Secretariat of Public Education. Such task must be in the hands of the civil society and in its capacity to accredit self-financed higher education institutions, with the same autonomy and scope as those of public universities, the relationship between the civil society and the government will remain unchanged in the Program. It will still perceive the public university as a decentralized entity created, financed and ruled by a Hegelian State and, at the same time, it will still see the private university as if it had a governmental concession to render a public service to be academically controlled by the State. This posture inhibits the undertaking of actions by universities because the Program has chosen not to analyze the prevailing behavior.
In this paper we analyze the optimal degree of centralization for the supply of public goods. We identify the reliance on an exclusion mechanism as a central feature of the decentralized provision of public goods. An exclusion mechanism induces a contest between users of the public goods who want to free ride and the providers who want to exclude free riding. This contest explains the costs of decentralization. A centralized contribution does not rely on an exclusion mechanism to finance the public goods but on taxation which induces different types of transaction costs. A comparison of the relevant distortions explains the optimal degree of centralization of the supply of public goods.