Tuesday, March 15, 2011

RESOURCE: Using Regional Institutions to Improve the Quality of Public Services

from: http://wdr2011.worldbank.org/Outsourcing%20to%20Regional%20Institutions


Edgardo Favaro

Lead Economist, Economic Policy and Debt Department, The World Bank

The rationale underlying a government's decision to subcontract the delivery of some public services to a regional organization is to access higher quality (and possibly lower cost) services than could be produced domestically. In that respect, contracting out a public service is not radically different from importing private goods and services. But in many other respects contracting out public goods and services is very different than importing most other private goods: first, there is no market where a country can purchase security or justice provision; second, there is risk that an arm's length relationship between the service provider and the client government may result in supplier actions that may not represent the interest of client governments; third, switching from one to another service provider is orders of magnitude more complex than it is in the case of most private goods and services.

A deeper understanding of subcontracting of public services to regional institutions is especially relevant in the context of the development of fragile states. If outsourcing some public service provision is feasible, bridging the gap between current poor quality public services and the type of services necessary to encourage development of a market economy is also possible within relevant development horizons.

The strategy followed in this paper is to study the conditions that facilitate the outsourcing of some public service provision, the governance structure ruling the relationship between the source and the client government and the actual performance of these agreements through the experience of several regional institutions in Sub-Saharan Africa and in the Eastern Caribbean. The second section of the paper describes the characteristics of fragile states and provides indicators of the quality of institutions. The third section describes eight experiences of outsourcing in Sub-Saharan Africa and in the Eastern Caribbean. The fourth section analyzes historical, cultural, technical and economic reasons that have contributed to the development of this type of regional institution in some parts of the world and the rationale underlying the outsourcing of some functions but not others.


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