The Institute for Economic Development at Boston University                                                                    Research Review Spring 2000

“Relative Capture of Local and Central Governments: An Essay in the Political Economy of Decentralization”

Pranab Bardhan and Dilip Mookherjee

IED Discussion Paper 97, November 1999

A common presumption running through discussions of decentralizing authority to local governments is that potential gains from greater accountability and sensitivity to local needs need to be traded off against the greater vulnerability of local governments to capture by local elites. Whether and when local governments are, indeed, more vulnerable to special interest capture is rarely addressed in existing literature. In this paper, Bardhan and Mookherjee construct a theoretical framework to address this question.

The authors study a model of electoral competition with lobbying by special interest groups, and voting behavior that is probabilistic, owing both to diversity of party loyalties and unpredictable swings in these across the electorate. A convenient feature of this model is that it enables a precise and simple identification of the degree of capture of any level of

government, thereby allowing its determinants to be analyzed. The authors confirm the classic argument of James Madison that lobbying activity by the elite is more effective at the local level, owing to less daunting coordination problems, thus promoting greater capture of local governments. On the other hand, inter-district heterogeneity in political awareness may cause electoral competition to be weaker at the national level. Variations in socio-economic inequality across regions may raise the value of campaign finance in national elections vis-à-vis local elections. Either of these factors could cause greater capture at the national level. In general, substantial heterogeneity in local capture may be expected across different regions. Political systems that ensure some form of power-sharing by different parties also tend to generate such heterogeneity, while reducing the scope of capture at the national level.

In conclusion, the authors stress the context- and system-specific nature of relative capture of local governance structures. This suggests the need to empirically investigate the extent of relative capture before pronouncing judgment on the prospects for any proposed scheme of political decentralization.