The Efficiency of India's Cities: Is There a Case to Finance Them?

One reason for unsatisfactory public service delivery in Indian cities is that city finances are in poor condition. Recent research shows that given the fragmented institutional arrangements for land in India's cities, there is a case for transferring revenues from land leasing and sales to cities. In this paper, the author determines whether such transfer of revenues to India's cities from the state governments is justified. The author uses stochastic frontier analysis to determine the efficiency of Indian cities, taking the case of roads. The author has found India's cities to be highly efficient in the provision of roads and there is only one percent inefficiency in the provision of roads by city governments. Hence transfer of finances to cities in a phased manner is recommended. Thus this paper shows a direct link between behavioral economics and concrete, practical applications at the organizational level.