# **1. Introduction**

The deplorable state of publicly provided social services in many developing countries has attracted considerable attention in recent years, from academics and policy makers alike. The 2004 World Development Report “Making Services Work for Poor People" details the dismal quality of education and health services offered to the poor in developing countries, and concludes that “social services fail the poor” (World Bank, 2004). Both sectors are plagued by high provider absenteeism, little on-the-job effort from those who do come to work, and overall poor performance. For example, teachers in primary schools and medical staff at primary health centers in India have absence rates of 25 percent and 40 percent, respectively (Chaudhury et al., 2006).<sup>1</sup> In India’s public education system, these problems are manifest in the failure of the public schools to impart even the most elementary skills. A 2005 nationwide rural survey on educational attainment of 7-14 year olds found that, even though most children are enrolled in school, 35 percent of primary school age children could not read a simple paragraph, and 41 percent could not do simple subtraction, competencies that should, according to government guidelines, be achieved by grade 2 (Pratham, 2005).

Inadequate funding does not appear to be the only reason for the systems’ poor performance. In fact, in the case of education, rigorous, randomized evaluations have found little evidence that more resources on their own, with no changes to the way education is delivered, can improve test scores.<sup>2</sup> In contrast, studies have found improvements in outcomes when modest incentives have been given to teachers (see e.g., Duflo, Hanna and Ryan, 2007, and Muralidharan and Sundararaman, 2007<sup>3</sup> ). However, these incentives were implemented by a non-governmental organization (NGO). When government bureaucrats have to implement them, the incentives were ineffectual. In Kenya, for example, head teachers were given grants to reward teachers who attend regularly. Even though the head teacher could use the money to get other things for the school if they did not use it to reward the teachers, they almost universally chose to give the money to the teachers, irrespective of whether the teacher had done anything to deserve it, with the result that the incentive had no impact (Kremer and Chen, 2002). In India a reform that was meant to link government nurses’ pay to their attendance was initially very effective, but failed to have any impact after the local bureaucracy started providing official excuses for most of the nurses’ absences (Banerjee, Duflo, and Glennerster, 2008).

The poor incentives of bureaucrats and public providers to deliver quality services contrasts with evidence of strong incentives of governments to deliver quantity, especially in education, by building schools and recruiting teachers (Glewwe and Kremer, 2006, Keefer and Khemani, 2004, and Banerjee and Somanathan, 2007). Keefer and Khemani (2005), building on a large political economy literature<sup>4</sup> , argue that this can be explained by political incentives of governments that are skewed toward the provision of private and verifiable benefits to some citizens, at the expense of quality improvements that are more diffuse and harder to verify. Providing (secure) jobs through teacher recruitment, or scholarships and other transfers, is more effective in winning elections than getting teachers to teach.

> 1 For health, Das and Hammer (2005) show that the average time spent by a public doctor to examine a patients is 2 minutes, and that the average visit does not include any physical exam. In education, Chaudhury, et al. (2006) find that half of the teachers present in school in India were not teaching at the time of the investigator’s visit.

> 2 For example, Glewwe, Kremer, and Moulin (2002) find no impact from textbooks, Glewwe, Kremer, Moulin and Zitzewitz (2004) find no impact from flip charts, and Banerjee, Kremer and Jacob, (2004) find no impact from additional teachers in India. For discussion and more references, see Glewwe and Kremer (2006).

> 3 See, on the other hand, Glewwe, Ilias, and Kremer (2003) for a cautionary tale on multitasking by teachers even when incentives are properly implemented.

> 4 See, e.g. Acemoglu and Robinson..(2001); Banerjee and Iyer (2005), Acemoglu and Robinson (2006); Rajan (2007); Hoff and Stiglitz (forthcoming).

2