Poor local public service delivery is common across the Global South. We argue that the short-term unobservability of investments to improve service delivery combine with adverse selection to weaken incentives for governments to make such investments. While programs to certify investments can mitigate this monitoring problem, the certification process’s effectiveness can be undermined by opportunistic politicians and certifiers. We test this argument using a Mexican program designed to certify service delivery investments, where certifications are self-assessed by municipal governments and validated by corruptible third-party institutions. Difference-in-differences estimates show that the program did not ultimately improve municipal public service delivery on average. Consistent with our model, this effect is only positive when the third party is unlikely to be corruptible and when the likelihood that the incumbent is not corruptible in producing the service is large. These findings highlight the challenges in improving service delivery and the importance of incentive-compatible monitoring.
limited public service delivery, unobservability of investments, certification;
IAST working paper, n. 20-114, October 2020