ABSTRACT
INTRODUCTION For a state with multiple-level governments, the process of decentralization, which is the transfer of authority or responsibility to local-level governments, is often seen as an important condition for economic development (Rondinelli and Nellis, 1986). It is emphasized that as the local government has access to more relevant information than the central government about local conditions, it is likely to make better decisions (Hayek, 1945). Decentralization also promotes efficiency by introducing competition among local jurisdictions, which has significant implications for overall economic development (Tiebout, 1956; Brewley, 1981). As Wallace Oates suggests, "The tailoring of outputs to local circumstances will, in general produce higher levels of wellbeing than a centralized decision to provide some uniform level of output across all jurisdictions" (Oates, 1994). In addition, say Montinola et al. , "Competition among jurisdictions provides incentives to replace poorly chosen strategies with variants of strategies that appear to succeed elsewhere" (Montinola et al., 1995: 59).
