This model, while useful, has some limitations. As a practical matter, it is often difficult to define the scope of benefits of a specific service and to determine which specific jurisdiction will reap these benefits. Education, for example, can be considered to have extremely localized benefits, given its impact on the future incomes of pupils. But, as a vehicle for poverty alleviation and political acculturation, it also has national benefits. Administrative constraints are another limitation.
Public services are subject to economies of scale, particularly in the use of specialized personnel.
Local governments may therefore find it advantageous to contract with larger, higher-level authorities to provide such services. To accomplish this, individual services are often unbundled, with each level of government performing the role that best reflects its interest or comparative advantage. Otherwise, the division of functions may become the object of intergovernmental gamesmanship. In South Africa, for example, the central government and the provinces have joint responsibilities for health and education, but the exact responsibilities of each are not defined. The result is that provinces receive transfers to fund health and education but use them for other purposes, knowing full well that the central government will intervene to provide the needed services.