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Institutional Constraints And Multiple Equilibria In Decentralization

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  • Iwan J Azis

Abstract

The economics of decentralization implies that it generates efficiency improvement (higher growth) due to local government's ability to respond to the needs of local communities. However, this is not always the case. While policies do matter, this paper argues that institutional factors hold the key to the problem. The interactions among these factors and the characteristics of leaders in the region determine the outcome of decentralization. By capturing these important properties, multiple equilibria can be generated, avowing the ambiguous effects of local capture. On this basis, a typology of local leaders is developed. To the extent that welfare†enhancing activities are often related to regional growth, the role of an incentive system in determining the local leaders' behavior is also analyzed. In essence, a lack of incentive mechanisms for local leaders to promote growth and the absence of a stick†and†carrot system explain why post†decentralization growth performance has been generally disappointing.

Suggested Citation

  • Iwan J Azis, 2008. "Institutional Constraints And Multiple Equilibria In Decentralization," Review of Urban & Regional Development Studies, Wiley Blackwell, vol. 20(1), pages 22-33, March.
  • Handle: RePEc:bla:revurb:v:20:y:2008:i:1:p:22-33
    DOI: 10.1111/j.1467-940X.2008.00140.x
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    Cited by:

    1. James CUST & Ridwan D. RUSLI, 2014. "The economic spillovers from resource extraction: a partial resource blessing at the subnational level?," Economic Growth Centre Working Paper Series 1402, Nanyang Technological University, School of Social Sciences, Economic Growth Centre.
    2. Ravit Hananel, 2014. "Can centralization, decentralization and welfare go together? The case of Massachusetts Affordable Housing Policy (Ch. 40B)," Urban Studies, Urban Studies Journal Limited, vol. 51(12), pages 2487-2502, September.
    3. Azis Iwan J, 2011. "Endogenous Institution in Decentralization," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 16(2), pages 1-18, May.
    4. Prof. Iwan Jaya Azis & Arnita Rishanty & Canyon Keanu Can, 2021. "Interplay Of Policy And Social Capital," Working Papers WP/12/2021, Bank Indonesia.

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