Governance Issues in Delivery of Public Services Pranab Bardhan University of California at Berkeley In this paper we note that the institutional context (and therefore the structure of incentives and organisation) in developing economies is quite different from those in advanced industrial economies, and this necessitates any discussion on the local governance issues in the delivery of public services in the context of development to go beyond the traditional fiscal federalism literature. With this in mind, we review some of the existing theoretical and empirical work, focusing particularly on the question of local accountability. 1. Introduction The main governance issue we focus on in this paper is decentral- isation in the delivery of public services. In public economics there is some discussion on this in connection with fiscal federalism, mostly relating to the case of the USA. The principles discussed in this literature have been fruitfully applied to developing countries like Argentina, Brazil, Colombia, South Africa, India or China, but in this paper we shall stress some of the special issues that arise in decentral- isation in developing economies, primarily because the institutional context (and therefore the structure of incentives and organisation) is in some respects qualitatively different from that in the classical US case (or the recent case of the European Union). For example, much of the literature on economic efficiency of inter-governmental competition in federalism starts with a market metaphor that is rationalised by the well-worn Tiebout (1956) model. Different local governments offer different public tax-expenditure bundles and mobile individuals are supposed to allocate themselves according to their preferences. The assumptions required for the Tiebout model are, however, much too stringent, particularly for poor JOURNAL OF AFRICAN ECONOMIES,VOLUME 13, AERC SUPPLEMENT 1, PP. i167–i182 Journal of African Economies Vol. 13 Suppl. 1, © Centre for the Study of African Economies 2004; all rights reserved