To do this, I'll describe this simple model. The question then is what sort of governing arrangements can lead to a supply of services that best meet the needs or demands of local people. There are a number of services that, although it might be technically possible for an individual household to supply, it is highly unlikely that the household would do so. This is the case for services that yield substantial benefits to persons other than the household itself. Some sort of joint decision process then must be used to determine the quantity of that service.
Local governments have a comparative advantage in conducting that joint decision process.
This is because of the superior information available at the local level. It's this decision process at the local level that is related to several of the topics considered during the past three days here at this symposium. First, not all services are appropriate for local governments to provide. The issue of sectoral decentralization therefore focuses on which public services are most reasonably provided by local governments. For example, appropriate public infrastructure lowers the costs of doing business and, therefore, provides an incentive for local economic development.