How to overcome rent seeking in Tanzania’s skills sector? Exploring feasible reforms through discrete choice experiments

Skills gaps and mismatches are widely documented as a hindrance to inclusive structural transformation across developing countries, especially in Africa. What is often overlooked, however, is the fact that skills development is a complex political economy process challenged by institutional and financing problems on the supply side, and inadequate demand, that is, a shortage of firms that can organise skilled labour and provide on-the-job training effectively. In such adverse contexts, rent seeking and corruption may arise from conflicting objectives, trade-offs and mis-aligned incentives among stakeholders – public sector skills providers and firms. With a focus on Tanzania, we (i) analyse the incentive structures underlying such rule-breaking behaviours and processes, and (ii) empirically test alternative institutional design strategies that would better align the interests of different stakeholders towards improved skills development outcomes. Building on over 30 in-depth stakeholder interviews in 2018, we conducted three Discrete Choice Experiments with over 200 firms to test the feasibility of different incentive packages in 2019. Our main hypothesis is that the successful re-alignment of stakeholders’ incentives must consider both the different and potentially conflicting objectives of public training institutions and the heterogeneity in skills needs and capabilities of different types of firms. We uncover latent preference structures differentiated by observable firm characteristics, most strongly by differences in technical capabilities, existing training provision and firm size. We conclude advancing an evidence-based tailored skills policy reform.