You are here

Markets and Hierarchies in Social Services in Latin America: Incentives, Institutions, and Politics

Photo by ttrust/Pixabay
Name of the Asset | Markets and Hierarchies in Social Services in Latin America: Incentives, Institutions, and Politics
Type of Asset | Working Paper
Date | September 2009



Governments in poor countries face great demands for expanding coverage and improving the quality of services, with few resources. Creating quasi-markets, i.e. public service delivered through public-private collaboration, is an institution-intensive reform, and raises a range of theoretical and empirical problems including agency dilemmas, information costs, shifting incentives and motivations, partial implementation, unequal access, insufficient accountability, and policing and enforcement.

This paper develops a framework for analyzing the problems and challenges – in incentives, institutions and politics – that arise in implementing education reforms in the context of Latin America. It summarizes arguments for and against the use of quasi-markets, and contrasts markets and hierarchies in social services and public utilities. It examines complementary considerations – especially facilitating information flows, flexibility, and entry and exit – that impact how well quasi-markets function. It also analyzes potential compensatory measures, to redress problems that typically arise in using market mechanisms, and considers how quasi-markets can change the politics of social service delivery.

Authors conclude that one of the few possible reforms to encourage better performance is through quasi-markets, even if highly constrained. Simplifications in reform or analysis are not likely to improve matters. Rather, a focus on information flows, variable incentives, principal-agent dilemmas, and various routes of accountability within reforms needs to be maintained. For observers, it is more difficult to isolate the net impact of the reform compared with other changes in the institutional or broader political environment. Given that there are so many ‘moving parts’ in any education system or other mass social service, isolating variables is complex at best. Although not a panacea, one methodological aid is comparative analysis, over time, across jurisdictions (where subnational governments adopt different reforms) or across countries. If variables have similar effects in different configurations of reform and different institutional contexts, then there are more grounds for confidence in the conclusions.

  • Armando Castelar Pinheiro (Gávea Investimentos, Rio de Janeiro, Brazil)
  • Ben Ross Schneider (Department of Political Science, Massachusetts Institute of Technology, Cambridge, USA)
Country and/or Region | Latin America
Name of the Program | Varieties of Governance: Effective Public Service Delivery
Funder(s) | The International Development Research Centre (IDRC), Canada and The World Bank  
Download the Full Study here

If you cite this resource, please notify with the subject line “GDN citation”.