Upload
sumeet2014
View
222
Download
0
Embed Size (px)
Citation preview
8/13/2019 Institutional Incentives in Social Infrastructure Provision
1/62
Institutional Incentives
in Social Infrastructure Provision
the District Primary Education Programme in India
Sumeet Manchanda
September 2003
The views expressed in this paper are those of the author who retains the copyright
8/13/2019 Institutional Incentives in Social Infrastructure Provision
2/62
- i -
CONTENTS
Lists of Abbreviations, and Figures ..... ii
SECTION I:INTRODUCTION AND BACKGROUND
Introduction ....
Background ....
1
4
SECTION II:THEORETICAL CONSIDERATIONS
Justifying the Use of the NIE..
NIE Insights Used in This Paper ....
A Framework Of Incentives Within Formal And InformalConstraints .
11
13
17
SECTION III:APPLICATION PART I:EXPLAINING PERFORMANCE
The Institutional Arrangements, and their Performance Explained
through Transaction Costs and Agency Chains .
Explaining Performance through Institutional Incentives ..
21
33
SECTION IV:APPLICATION PART II:EXPLAINING CHOICE
Explaining Choice through Institutional Incentives ... 40
SECTION V:CONCLUDING DISCUSSION
Concluding Discussion... 46
Works Cited .... 50
Works Consulted . 54
8/13/2019 Institutional Incentives in Social Infrastructure Provision
3/62
- ii -
List of Abbreviations
BEO: Block Education Officer
BEP: Bihar Education Project
CBRI: Central Building Research InstituteCWP: Civil Works Programme
DfID: Department for International Development
DOE: Department of Education
DOEEL: Department of Elementary Education and Literacy
DPEP: District Primary Education Programme
EdCIL: Educational Consultants (India) Limited
EEB: Elementary Education Bureau
GOI: Government of India
IAS: Indian Administrative Services
JRM: Joint Review Mission
MP: Madhya PradeshSPE: State Project Engineer
SPD: State Project Director
TSG: Technical Support Group
UP: Uttar Pradesh
VEC: Village Education Committee
VCC: Village Construction Committee
WB: World Bank
List of Figures
Figure 1: Institutional Setup for Delivery of Social Infrastructure under DPEP.. 7
Figure 2: Proposed Framework for Analysis of Institutional Incentives . 17
Figure 3: Focus Levels for Explaining Performance and Choice 20
Figure 4: Apparently Simple Agency Relationship between Departments . 21
Figure 5: The Two Departments Working in Parallel, with No Direct Meeting Point. 23
Figure 6: Apparently Simple Agency Relationship in MP .. 24
Figure 7: DPEP Civil Works Management Madhya Pradesh ... 25
Figure 8: DPEP Civil Works Management Structure, Assam . 28Figure 9: DPEP Civil Works ManagementBihar . 30
Figure 10: Financial Progress in DPEP II and III, September 2002 32
Figure 11: Transaction Costs and Accountability in Different Arrangements 32
Figure 12: Institutional Incentives Affecting Performance of Implementing Staff in
Different Arrangements ... 37
Figure 13: Institutional Incentives of Decision Makers Affecting Choice of
Arrangements ... 44
8/13/2019 Institutional Incentives in Social Infrastructure Provision
4/62
IINTRODUCTION AND BACKGROUND
8/13/2019 Institutional Incentives in Social Infrastructure Provision
5/62
- 1 -
INTRODUCTION
Developing countries are still in the process of building social (educational and
health) infrastructure, especially in poor, remote and rural regions. The provision of such
infrastructure in such regions is characterised by market failure, and the public sector is
the only viable option in spite of the fact that it has delivered poorly so far (Israel, 1987;
World Bank, 1992; 2003). This conundrum has led many analysts to regard the problem
of social infrastructure provision as one of the most difficult in development management
(Hughes, 1998; Paul, 1991; Israel, 1987). The problem is likely to continue, as
governments continue their attempts to match supply to requirements. The challenge is to
find ways and means to improve efficiency within the public sector paradigm.
The District Primary Education Programme (DPEP) in India is a useful laboratory
to examine this issue.1 In this nation-wide central government programme, different
states attempted different institutional arrangements to deliver educational infrastructure
such as school buildings, water and sanitation facilities, educational management
institutes and training centres. Some states chose to follow traditional practices, and
transfer execution responsibilities to specialised public sector agencies. Others chose
greater amounts of private participation. Still others chose an alternative institutional
arrangement within government, where they pulled out public sector staff from their
regular work environment, and provided them with a different one. The performance of
all the states has been closely monitored and documented through the project period, and
final evaluations have recently been conducted.2Interestingly, a study of these documents
shows that patterns of variation in performance can be traced to the variations in
institutional arrangements applied.
1 This study is on the performance of the infrastructure component of DPEP, and
does not in any way reflect the performance of the other aspects of theprogramme.2Final drafts of evaluation reports were available at the time of writing.
8/13/2019 Institutional Incentives in Social Infrastructure Provision
6/62
- 2 -
Using the theoretical framework of the New Institutional Economics (NIE), and
working within its typical rational-choice framework (Knight, 1992:ix), this paper first
attempts to explain why some institutional arrangements have demonstrably worked
better than others in DPEP. Using the experience of Madhya Pradesh as an example of a
state that followed conventional practice, it attempts to explain why this practice leaves
much to be desired. Then, it uses the experience of Assam to describe a creative
arrangement that worked well within the overall institutional structure, or rules of the
game. Lastly, it tells the story of Bihar, which attempted a radical arrangement and
succeeded for a while but which could not sustain the arrangement, and slipped badly
in performance.
The paper then goes on to explain the institutional incentives that guided
decision-makers in choosing between the above arrangements. Here, it finds empirical
support for the insights of institutional theorists who argue that inefficient institutional
arrangements can get locked in (Harriss 2002; Nugent, 2002), and are difficult to
remove and replace (with more efficient ones), because they are outcomes of
distributional functions in society (Knight, 1992). The paper, in effect, provides an
empirical example of the informal and formal rules of the game that structure individual
incentives in a manner that reinforces inefficient institutional arrangements even when
there is demonstrable evidence and knowledge of other arrangements that could lead to
better social results.
From the experiences of DPEP, the paper derives important understanding of
institutional incentives that affect social infrastructure provision in particular, and public
provision in general. Significant empirical lessons are learnt which should provide
insights helpful to similar future programmes.
8/13/2019 Institutional Incentives in Social Infrastructure Provision
7/62
- 3 -
BACKGROUND
Locating Social Infrastructure Provision
The distinction between social, and economic infrastructure was prominently
made by the World Bank (1993; 1994) and is now widely accepted3. Social infrastructure
refers to infrastructure in the health and education sectors, which are seen as long-term
investments in human resource development and poverty reduction. On the other hand,
infrastructure such as dams, roads, canals, telecommunications, electricity and the like is
seen to contribute more directly and quickly to economic growth, and is termed
economic infrastructure.
Economic infrastructure can be provided through various institutional
alternatives: public ownership with public provision; public ownership with private
operation; private ownership with private operation; community ownership and provision
(World Bank, 1994). Due to the nature of social infrastructure, however (as detailed
below), public provision remains the only viable option here.
Social infrastructure is classified in the economics literature as merit goods,
which are not pure public goods, nor pure private goods. According to Hughes (1998),
pure public goods are generally provided by the government because they are non-
excludable goods, such as street lighting. On the other hand, pure private goods, such as
cars, are excludable, and it is generally left to the market to provide them. While merit
goods (such as education and health infrastructure) are excludable and can be considered
private goods, the government is generally obliged to step in where the market is not able
to provide them in an optimal fashion (World Bank, 1992). This market failure could be
due to reasons such as the inability of poor people to pay; or the prohibitive cost of
3see DfID (2002), and Willoughby (2002)
8/13/2019 Institutional Incentives in Social Infrastructure Provision
8/62
- 4 -
private provision in remote and scattered locations (such as in DPEP, which operated in
remote, poor and underprivileged locations).
The government is obliged to provide these goods because they are considered
socially desirable in a welfare context.
[A]n educated workforce is economically desirable and government
assistance may improve overall educational outcomes for the benefit of
society as a whole . . . [but] . . if education is regarded as a private good
there are equity problems and efficiency ones if those with innate ability
are not educated (Hughes, 1998: 98).
The DPEP Civil Works Programme
DPEP was4a programme of the Indian central government funded by the World
Bank, DfID, the EU, UNICEF and the government of Netherlands. It was the largest
primary education programme in the world (Bonner and Mukerjee, 2001), expanding
from 42 districts in its first phase, to 257 districts across 18 states by its fourth phase
(DPEPMIS, 2001).5With lofty objectives and an innovative approach, the project stood
out among government development projects as being particularly inspirational for its
participants, and creating a sense of working in mission mode6in its offices across the
country.
DPEPs substantial infrastructure component (called the Civil WorksProgramme
henceforth referred to as CWP) provided new school buildings, additional classrooms,
water and sanitation facilities, and repairs services in school campuses. In addition, it
also provided infrastructure for educational and training and management facilities at
state, district and sub-district levels. The numbers of facilities created by the programme
are, for example, upwards of 30,000 new school buildings, 50,000 additional classrooms
4As of September 2003, programme work activities are complete in all states but
four. Since the programme has ended in the majority of states, including the
case study states, I speak of it in the past tense.5The source mentions a count of 248 districts, but 9 additional districts wereadded in Rajasthan subsequently.6A common term used to describe working practices in DPEP.
8/13/2019 Institutional Incentives in Social Infrastructure Provision
9/62
- 5 -
and 15,000 toilet blocks (TSG, 2002b). In the creation of these facilities, the programme
attempted to demonstrate the innovations of child-centred design, appropriate
technologies, and community participation.
Even after DPEP, the infrastructure gap is still large in many programme
districts,7and is much larger in non-programme districts. The DPEP CWPs budget has
been less than one-tenth of that required to fulfil the identified educational infrastructure
need of the country in primary education (Bonner and Mukerjee, 2002). Efforts to match
supply to demand will continue for some time - DPEP is being followed up with an even
more ambitious programme called the Sarva Shiksha Abhiyan (SSA), which aims to
universalise elementary education in India by the year 2010 (DOEEL, 2002), and which
will expend funds for infrastructure in excess of USD 1200 million 8. The findings of this
paper should provide guidance for the institutional arrangements to be used there, and in
other similar programmes across the developing world.9
Institutional Arrangement for Infrastructure Delivery
The broad institutional arrangement is described in figure 1. It is useful to briefly
introduce all participants in this arrangement as relevant to this paper.
The donors, notably DfID, possessed in-house infrastructure experts who
reviewed the programme bi-annually, in a Joint Review Mission (JRM) with
the Government of India (GOI).
7According to district infrastructure status documents prepared by all DPEP
states in 2002.8A very conservative estimate based on DOEEL (2002).9Such as in the infrastructure components of the Malawi Primary Education
Programme, or the Pakistan Primary Education Programme.
8/13/2019 Institutional Incentives in Social Infrastructure Provision
10/62
- 6 -
(the two prime foci
of this study)
State PWD;External Consultants
District Administration;DRDA;
Panchayat Body;Engineering Agency
Government of India, MHRD:Elementary Education Bureau
Director in charge of Civil Works
State Society for DPEPState Project Director;State Project Engineer
Donors
National TSGCivil Works Group;National External
Consultants
District Project Office
Engineering Cell(or)
Line Ministry EngineeringDepartments
Village/ Ward EducationCommittees
Village/ Ward Construction
Committees
Figure 1: Institutional Setup for Delivery of Social Infrastructure under DPEPSource: adapted from Bonner and Mukerjee (2001:6)
The Elementary Education Bureau (EEB)10 in GOI was made up of senior
Indian bureaucrats who directed the programme. These bureaucrats were
primarily from the elite and famous (see Tendler, 1997) Indian Administrative
Service (IAS).
10The unit in GOI which directed DPEP was called EEB, DOE or DOEEL at different
times over the years.
8/13/2019 Institutional Incentives in Social Infrastructure Provision
11/62
- 7 -
The EEB was provided technical and management support by the Technical
Support Group(TSG), made up of private consultants hired full-time for the
project. These consultants also hired other national consultants as per need.
The State Society for DPEP was set up specifically to implement the
programme, and was separate from the State Education Department. It was
headed by a State Project Director (SPD), who in most cases again was a
middle to senior level IAS officer. The society had a State Project Engineer
(SPE) who headed the CWP. It could hire external consultants from the
market, or take help from the state Public Works Department (PWD), for
technical and management support.
TheDistrict Project Office was in charge of planning and implementation at
the district level. It either had an in-house engineering cell, or had to
coordinate with state engineering departments, to manage the works.
Village Construction Committees (VCCs) were in charge of actual
construction.
All the participants in this arrangement were constant across all programme states,
except for the district and sub-district management arrangement.11As mentioned before,
variations in performancecan be traced to variations here, and thus this is one of the
prime foci of this paper. The choice of this arrangement, however, rested on the state
decision-makers, primarily the State Project Director (SPD). These decision-makers are
the other prime focus of this paper.
11The village level implementation agency is used as constant in this studyalthough it was not so across the project. Further clarification on this is
provided in the notes on research methodology.
8/13/2019 Institutional Incentives in Social Infrastructure Provision
12/62
- 8 -
Notes on research methodology
Isolating institutional arrangements as factors affecting performance
Groups of states can be isolated based on institutional arrangements. From the
JRM reports (TSG 1996 2002), and the final evaluation studies, patterns of
performance can be found that coincide strongly with this grouping. This finding was
substantiated by triangulation through interviews with key individuals. Thus, the action
of isolating institutional arrangements as the factors affecting performance in this paper
can be said to be non-controversial in nature.
Comparing Assam, Bihar and Madhya Pradesh
The states of Assam, Bihar and Madhya Pradesh are compared in this paper.
While they share many commonalities (such as pockets of deep poverty), they are also
divergent not least in the performance of their politicians and administration over the past
few years.
However, they are comparable here since DPEP was a central government
programme, implemented by state project societies independent of state administration
the programme was thus partially insulated from local influences.
Assam, Bihar and MP have been chosen as the study states since firstly, they
represent different institutional arrangements in the most pure sense, since they
persisted with their respective arrangements over the longest possible period of nine
years.12Care has been taken here to report aspects of their programmes that were shared
by, and thus are representative of, other states that chose similar arrangements. Secondly,
they all had a substantial number of districts under DPEP and thus their experiences
can be said to be state-wide rather than district-specific.
12Across DPEP Phases I and II for MP and Assam, and across BEP and DPEP in thecase of Bihar. Other states adopted different arrangements in different
districts or across phases.
8/13/2019 Institutional Incentives in Social Infrastructure Provision
13/62
- 9 -
Implementation agencies
Various implementation agencies were used in DPEP private contractors;
government engineers; and village construction committees (VCCs). VCCs were the
most common, and are accepted as being the most successful (DOE, 1998; TSG 1996-
2002). They are being used in SSA as well, and are fast becoming the standard
implementing agency for social infrastructure in India - thus, this paper limits itself to
describing arrangements where VCCs were implementing agencies.
References
I worked closely with DPEP from 1999 to 2002 as part of the national TSG.
While the prime references here are from published and official documents, and
interviews conducted specifically for the purpose of this paper, a few select references
are from my own observations and discussions with participants at state and field level
within the institutional structure of the programme. I was fortunate to have to prepare
visit reports in all my various visits across the programme, for which I kept personal
notes, which, though not intended for this use, have proved reliable enough to be used in
a work of this nature.
8/13/2019 Institutional Incentives in Social Infrastructure Provision
14/62
IITHEORETICAL CONSIDERATIONS
8/13/2019 Institutional Incentives in Social Infrastructure Provision
15/62
- 11 -
JUSTIFYING THE USE OF NIE
The questions that this paper asks of the DPEP CWP are: (1) Why did different
states choose different institutional arrangements? (2) How effective were different
arrangements in achieving project targets, and why? (3) Why were some states more
successful in adopting better arrangements than others?
The NIE is used in this paper since it has developed in order to answer precisely
such questions
Why are [institutions] the way they are? . . .How and to what extent dothey explain differences in productivity? . . .Why and how do inefficient
institutions get locked in? (Nugent, 2002:2)
Institutional analysis, or the NIE, is a paradigmatic change from the traditional
approach [of Public Administration] (Ostrom et al, 1993:18). The traditional approach
of public administration was built around the traditionalpracticeof public administration,
and described it as it evolved. Even one of its main building blocks, Webers theory of
bureaucracy, is considered by some to be no more than a skilful depiction of what he saw
in practice (Hughes, 1998). Now, this approach is fast losing relevance since patterns in
public administration have rapidly changed over the past three decades due to the
reduced financial powers of governments of the developing world, and the increased
private sector and civil society involvement in public management (Ostrom et al., 1993).
The alternative of the NIE does not describe patterns of behaviour, but more
usefully, provides general tools of analysis, mostly adapted from pure economic theory.
In addition, it can usefully be employed in conjunction with other theories and concepts
to sort information (Harriss et al., 1995:9). It is thus more universal in its application,
and allows one to explain patterns and theories of human behaviour that are specific to
particular issues. For instance, Ostrom et al. (1993) have effectively used it to analyse the
8/13/2019 Institutional Incentives in Social Infrastructure Provision
16/62
- 12 -
problem of collective action in the particular case of rural infrastructure. Again, using
NIEs tools, Leonard (2000) has provided deep insights into human behaviour in the
specific case of health and veterinary services in Africa. Such studies have shown that the
NIE is useful in the analysis of non-macro socio-economic issues13.
There are two substantial criticisms of NIE to be addressed in this justification.
The first is that [t]he NIE engages with the problem of culture, as it does with politics,
but with difficulty (Harriss, 2002:6). I cannot claim to have got around this problem.
However, since I base my analysis solely on findings that are common acrossstates, this
may not take away from the findings.
The second criticism is that while the NIE is, in most situations, perfectly capable
of explaining change, it is not equipped to always predict it (Nugent, 2002). This also
may not pose a problem since this paper does not attempt to go beyond explanation at
any stage.
13While the NIE has been criticised for its limited power to analyse macro
issues - such as Toye (1995:64), who says that as a grand theory of socio-
economic development it is empty - he and others such as Harriss et al.
(1995) agree that it provides substantially advanced tools for analysis at themicro level. Since the present study is micro in nature, the NIE is considered
adequate for the purpose.
8/13/2019 Institutional Incentives in Social Infrastructure Provision
17/62
- 13 -
NIEINSIGHTS USED IN THIS PAPER
Institutions, formal and informal
Institutions are the rules of the game in a society, or, more formally, are
the humanly devised constraints that shape human interaction (North,
1990: 3).
North goes on say that the humanly devised constraints can be both formal,
and informal. These can reinforce, or undermine each other. Informal constraints are
derived from culture, and its influence on the constraints that people impose on
themselves in their transactions. They can be (1) extensions, elaborations and
modifications of formal rules, (2) socially sanctioned norms of behaviour, and (3)
internally enforced standards of conduct (1990: 40).
Formal rules include political (and judicial) rules, economic rules, and contracts
(page 47). They evolve as societies become increasingly complex, and help reduce
transaction costs within the complexities of human interaction.
An interconnected web of formal and informal rules makes up the overall
institutional constraints that influence the opportunity sets of individuals. This web, in
different combinations, influences choice sets and decision-making in various contexts
(North, 1990). I shall return to this concept later in this section.
Accountability, and Agency Theory
NIE has prominently applied the tool of agency theory (traditionally applied to
the private sector), to the public sector, where it is useful in describing accountability
systems (Hughes, 1998). The agency problem is described as
a situation in which a principal (or group of principals) seeks to establish
incentives for an agent (or group of agents), who takes decisions thataffect the principal, to act in ways that contribute maximally to the
8/13/2019 Institutional Incentives in Social Infrastructure Provision
18/62
- 14 -
principals objectives. The difficulties in establishing such an incentive
structure arise from two factors: (a) the objectives of principals and agents
will typically diverge, and (b) the information available to principals and
agents will generally be different. (Vickers and Yarrow, 1988:7)
Arrow (1985) has elaborated on part (b) above and identified two sub-problems
within this. One, where information of the effort of the agent is not available to the
principal, and the principal cannot check to see if the actions of the agent are as
scrupulous as they could be. This problem is referred to as moral hazard.
The second case described by Arrow is one where the agent has made some
observation that the principal has not made, and while the agent should use this
information in making decisions to maximise the principals interest, the principal cannot
check that this has been done. This problem is referred to as adverse selection.
Transaction Costs
While institutions are derived to increase efficiency by lowering various types of
costs and risks, there are also costs in their establishment and operation which are
broadly termed as transaction costs (Nugent, 2002). One simple categorisation of
transaction costs is by Ostrom et al. (1993), where transaction costs include coordination
costs (such as organising and communicating); information costs (related to time and
place, and superior/ scientific knowledge), and strategic costs (such as shirking and
corruption).
Institutional change and state failure
Khan (1995) distinguishes between two types of institutional14failure that have
been addressed within the NIE approachwhich he calls Type I, and Type II failures.
Type I state failure, or structural failure occurs if a particular formal
institutional structure results in lower net benefits to society compared to
an alternative structure (Page 73).14He uses the terms state failure, and institutional failure interchangeably.
8/13/2019 Institutional Incentives in Social Infrastructure Provision
19/62
- 15 -
NIE analysis of this type of failure attempts to understand the contribution of
different institutions to social and economic performance. In this static analysis, better
and worse performing institutions could be theoretically identified or empirically
observed.
Type II failures are dynamic in nature and describe failures of transition in
institutions:
Type II state failure or transition failure occurs when the process for
changing the structure of institutions attains a lower cumulative set of net
benefits for society compared to an alternative process over a given
period (page 73).
North offers that institutional change is overwhelmingly incremental (1990:83),
and insists that discontinuous or sudden change is generally unsuccessful. He presents
discontinuous change as a matter of conflict between two coalitions, where [o]ne faction
may eliminate the others, but more common is a lengthy period of uneasy and
quarrelsome compromise (page 90). In addition, institutional theorists recognise that it
is perfectly possible for a society to get locked in to an inefficient set of institut ions
because of the interests of power-holders in their reproduction (Harriss, 2002:2).
Institutional Incentives
The incentives of individuals are central to every theoretical framework in public
management
15
, and the NIE is no different in this respect. Norths great stress on
incentives is clear when he says:
Incentives are the underlying determinants of economic performance. . .
bringing incentives up front focuses attention where it belongs, on the key
to the performance of economies. (1990:135)
15For discussions of individual incentives under traditional Public
Administration Theory, see Simon (1997); under newer Public Management Theory,see Hughes (1998); under NIE, see Leonard (2000) and Ostrom et al (1993); under
network models of Public Management, see Kickert et al (1997).
8/13/2019 Institutional Incentives in Social Infrastructure Provision
20/62
- 16 -
This emphasis on individuals incentives in institutional analysis is due to two
reasons: firstly, building on the concept of the (rational) individual helps towards
building on a theory of human behaviour, which all studies based on institutional analysis
aim to do. Secondly, institutions are created byhuman beings, who also alter them over
timehence, any theory of institutions needs to begin with the individual (North, 1990).
There is no single framework of incentives that is used within institutional
analysis - different institutional theorists have used different frameworks. Ostrom et al
(1993:8) use the framework defined by Simon, Smithburg, and Thompson (1958:62) who
proposed that individuals incentives to perform, (in addition to material ones), were:
(1) opportunities for distinction, prestige, and personal power; (2)
desirable physical conditions in the workplace. . . .; (3) pride in
workmanship, service for family or others, patriotism, or religious feeling;
(4) personal comfort and satisfaction in social relationships; (5)
conformity to habitual practices and attitudes; and (6) a feeling of
participation in large and important events.
Chong (1991; 2000) has used a broader set of incentives to explain human
behaviour, such as material (or economic) and social incentives. To tackle the variety of
possible variables in my study, I would prefer to use and extend this broader
classification, by taking a cue from North (1990) who states that incentives are key to
interaction whether in the social,economic or political spheres. To these three spheres,
I would add the insights of traditional public administration theory and propose that the
professional sphere needs to be added to this conceptualisation, incorporating
individuals motivation to contribute to organisational goals (Simon, 1997).
8/13/2019 Institutional Incentives in Social Infrastructure Provision
21/62
- 17 -
AFRAMEWORK OF INCENTIVES WITHIN FORMAL AND
INFORMAL CONSTRAINTS
Returning to Norths (1990) web of formal and informal constraints that
influences choice sets, I propose a framework that sets up a dialogue between the
incentives in the four spheres described above, and this web of constraints. Such a
framework can be denoted as a matrix (below).
Context
Incentives
FormalConstraints /
Rules
InformalConstraints /
Rules
Professional
Incentives
Social
Incentives
Economic
Incentives
Political
Incentives
Fig. 2: Proposed Framework for Analysis of Institutional Incentives
Professional Incentives
Here, professional incentives within formal rules would include career
progression as normally understood. Informal professional incentives would include
solidary and purposive incentives as spelt out by Clague and Wilson (1961), where
solidary incentives are the feeling of belonging in a team, loosely defined as team spirit;
and purposive incentives are the ideological incentives that motivate individuals towards
performance. This category would also subsume categories (1), (2) and parts of (3) and
(6) from Simon, Smithburg, and Thompson (1958) quoted above.
8/13/2019 Institutional Incentives in Social Infrastructure Provision
22/62
- 18 -
Social Incentives
Especially in the public sector at the local levels, there can exist a strong
relationship between staff involved in service provision, and the local communities they
serve (as demonstrated by Tendler, 1997). The desires to gain or sustain friendships, to
maintain ones social standing, and to avoid ridicule and ostracism (Chong, 1991:34)
are goals that provide inducements to performance that may be described as social
incentives. Such incentives are built up through repeated interaction, which Chong
(1991) has described in iterated game models.
More formally, media attention can also produce social opinion that affects
individuals incentives.
Economic Incentives
All theories of incentives agree that material, or economic incentives are central
to human behaviour and interaction. Formal economic incentives include those that are
available as part of the job contract. Informal ones include rent-seeking and corruption.
Political Incentives
the administration or management of the public sector does not exist in a
vacuum; the public, the political leadership of government and its public
services are closely tied to each other by institutional arrangements and
political interaction . . . the business of government is embedded in
politics. (Hughes, 1998:225)
Political incentives include the pressures exerted by politicians at all levels, on
government staff, to perform in accordance with political goals whether or not these
agree with immediate socio-economic, or organisational goals. An example of this to do
with public infrastructure provision, is the reluctance of any government programme to
invest in repairs and maintenance, and allot preference to new construction instead
(which is wasteful in the long run). According to Ostrom et al.(1993), this reluctance is
8/13/2019 Institutional Incentives in Social Infrastructure Provision
23/62
- 19 -
due to political disincentives, where, for politicians, new infrastructure creation is a
sure vote-gatherer, while repairs and maintenance are not. Another example of political
incentives is where job appointments in the public sector are based on recommendations
by politicians rather than being strictly merit-based. Such pressures abound in a
clientelist environment, of which Indias public sector is no doubt an example.
Applying the Framework
The following section (section III) aims to explain performance of different
institutional arrangements within DPEP. It does this in two sub-sections: the first
introduces the various institutional arrangements and partially explains performance
through the lenses of transaction costsand agency chains. The next sub-section explains
performance by applying the framework of institutional incentivesto the individuals who
directly affect performance, at the field management and implementation level within
DPEP. Since this section identifies better and worse institutional arrangements, it can
also be thought of as explaining Type I failure (Khan, 1995) in a micro context.
Section IV attempts to explain choice of institutional arrangements by the
decision-makers empowered to make that choice by applying the same framework of
institutional incentives to these individuals. And since this section attempts to explain
transition failure due to poor selection of institutional arrangements, it can also be
thought of as explaining Khans Type II failure, again in a micro context.
8/13/2019 Institutional Incentives in Social Infrastructure Provision
24/62
- 20 -
(Focus whileexplaining
performance)
Government of India, MHRD:Elementary Education Bureau
State Project Director
Donors
National TSGCivil Works Group;National external
consultants
Engineering Cell(or)
Line Ministry EngineeringDepartments
Village/ Ward Construction
Committees
(Focus whileexplaining
choice)
Figure 3: Focus Levels for Explaining Performance and Choice
8/13/2019 Institutional Incentives in Social Infrastructure Provision
25/62
IIIAPPLICATION PART I :
EXPLAINING PERFORMANCE
8/13/2019 Institutional Incentives in Social Infrastructure Provision
26/62
- 21
THE INSTITUTIONAL ARRANGEMENTS,AND THEIR
PERFORMANCE EXPLAINED THROUGH TRANSACTION COSTS
AND AGENCY CHAINS
THE CONVENTIONAL ARRANGEMENT
Educational infrastructure in India is conventionally provided by public sector
engineering departments such as state Public Works Departments (PWDs), Panchayati
Raj Engineering Departments (PRDs), and so on (DOE, 1998; Bonner and Mukerjee,
2001). The state and central ministries of education and health send across requirements
and budgets, and the engineering departments manage and implement the works, either
through private contractors or by directly procuring material and hiring labour. On the
face of it, thus, the principal-agent relationship between the two departments seems
straightforward and logical.
The general consensus is, and expert evaluation studies show, however, that the
infrastructure created as an outcome of such a relationship is highly inadequate. For
example, extremely poor outcomes were found within the infrastructure created in the
much vaunted, nation wide Operation Blackboard (OB) central government scheme that
Output: Educational Infrastructure
Figure 4: Apparently Simple Agency Relationship between Departments
State Engineering Department(Specialised Agent)
State/ Central Department of Education(Principal)
8/13/2019 Institutional Incentives in Social Infrastructure Provision
27/62
- 22
used this procedure (CBRI, 2000). Most indicators such as those of design, site selection
and construction quality showed inadequate results. More seriously, buildings were
found to be incomplete even years after their completion date, with some missing basic
elements such as floors and doors and windows. Similarly, an external evaluation
(Sulabh International, 1996) found comparable problems with the infrastructure created
by the Rural Engineering Services (RES) in Uttar Pradesh. Why did this apparently
logical relationship create such poor outcomes?
Agency Problems
While the engineering department acts as the agent for the Department of
Education (DOE), a clear moral hazardproblem is present. The basis of the relationship
here is that the engineers know much more about construction than the staff of the DOE.
There is no possible mechanism for DOE staff to be able to check that the efforts of the
engineers are diligent enough. Again, when these two departments work in isolation of
each other, there are problems of information asymmetries (Bonner and Mukerjee, 2001).
There are often cases where teachers require permanent teaching aids that are deliverable
through infrastructure programmes; or, the engineers may come across a construction
technology or design element that could help in classroom transactions (DOE, 1999a).
These pieces of information, though are not transferred and shared, and this leads to the
problem of adverse selection.
When looking at the workings of the two departments in practice, a second
problem becomes apparent: that the agency chain is actually not as straightforward as it
might seem (figure 5). Accountability within each department is strictly hierarchical
withinthe department, and there is actually no accountability in practice between the two
agencies. The two departments, in practice, work in parallel with each other and report to
different heads.
8/13/2019 Institutional Incentives in Social Infrastructure Provision
28/62
- 23
Transaction Costs
Coordination and information costs in such an arrangement are clearly very high.
In many instances, the schoolteacher does not know when the site was examined, or
when elementary decisions such as the number of classrooms to be built, were taken
(Notes 3, 2001). At the state level, the educationdepartment maintains enrolment data,
and the engineeringdepartment maintains the data on classroom availability but this
data is not shared and collated (Bonner and Mukerjee, 2001; Interview 6, 2003). The two
Figure 5: The Two Departments Working in Parallel, with No Direct Meeting Point
Source: own observations(arrows pointing up denote accountability; arrows pointing down denote authority)
State Level
EducationDepartment
EngineeringDepartment
State EducationSecretary and StateEducation Officers
State ChiefEngineers
District Education
OfficerDistrict Engineer
Block Education
OfficerBlock Engineer
Teachers(delivering
education)
Private contractors /hired labour(delivering
infrastructure)
DistrictLevel
Sub-district
SchoolLevel
StateEducationMinister
State RuralDevelopment
Minister
8/13/2019 Institutional Incentives in Social Infrastructure Provision
29/62
- 24
agencies are not responsible to each other, nor even to the same superiors - and as such,
there is no incentive to attempt to devise mechanisms to lower transaction costs, leading
to such inefficient arrangements getting locked in.
DPEP ARRANGEMENT 1:CONVENTIONAL ARRANGEMENT IN MADHYA
PRADESH
In spite of the poor performance of the conventional model described above, most
DPEP Phase-1 states attempted to work with it at least for a while. Madhya Pradesh (MP)
followed the conventional arrangement throughout the project period and is the ideal
example.
MP chose to use the Rural Engineering Services (RES) as the managers of their
CWP. They utilised the logic of the principal-agent relationship as in figure 6, in
depending upon this arrangement to deliver the goods. They also appointed an in -house
engineer at the state, and in some districts (Ramani-Grover, 2003). MPs management
structure was described by DOE (1998) as in figure 7. As with other states that chose this
arrangement (TSG 1996-2002; DOE, 1998; Grover, 2002; Ramani-Grover, 2002), the
outcomes here were discouraging. The final evaluation report of the MP CWP (Ramani-
Output: Educational Infrastructure
Figure 6: Apparently simple agency relationship in MP
Rural Engineering Services
(Specialised Agent)
State Project Society
(Principal)
8/13/2019 Institutional Incentives in Social Infrastructure Provision
30/62
- 25
Grover, 2003) gives it a C in most of its evaluation indicators, including
implementation procedures, design quality, cost of construction, and ease of maintenance.
Agency Problems
As in the conventional arrangement, the agency chain is actually not as
straightforward as it might seem. Here, the village construction committee is accountable
to the block and district-level engineers of the RES, who are accountable to their state
(progress
monitoring only)
State Level
State DPEP Society RES
State Project Director;State Project Engineer
State Chief Engineers
DPEP Engineers(in a few districts)
DepartmentEngineer
DepartmentEngineer
Village Construction Committee
District Level
Sub-district
School Level
Figure 7: DPEP Civil Works Management Madhya Pradesh
Source: adapted from DOE (1998:16)
Note: arrows pointing upwards denote accountability; arrows pointing downwards denote authority
National
Level
State
Ministers
8/13/2019 Institutional Incentives in Social Infrastructure Provision
31/62
- 26
chief engineer, who is accountable to the state ministers. At no stage does the department
become accountable to the DPEP Society.
The appointment of a few engineers withinthe project society at state and district
levels was designed to avoid the moral hazard problem. The in-house engineers could
supervise and monitor the works and note technical flaws such as the use of poor
material, or inappropriate construction practice. This monitoring, though, was of little
value in affecting the course of events at site. Due to the skewed agency chains, for
example, an in-house engineer could meet a departmental engineer on site but could not
issue any instruction. Monitoring reports were to be submitted to the district project
office (DPO). The DPO would then send letters to the state level, from where the letters
would go to the RES. No replies, however, were forthcoming from the RES, and there
was little the state society could do about it (Notes 2, 2000).
Transaction Costs
Coordination thus was a problem not just because of the division of duties, but
also because of poor accountability, which led to poor incentives to coordinate, in the
first place. Information, too, was a major problem. DPEP conducted many training
programmes for its staffwhile the project engineers would faithfully attend, many RES
engineers would not. Information and coordination were such a problem that no RES
engineer could be contacted to report to site even during the visits of the National
Evaluation Team (Ramani-Grover, 2003).
8/13/2019 Institutional Incentives in Social Infrastructure Provision
32/62
- 27
DPEP ARRANGEMENT II:INTERMEDIATEARRANGEMENT IN ASSAM
An intermediate arrangement was attempted by the majority of DPEP states,
especially towards the second phase of the programme when results of other
arrangements were becoming known. Assam was one of those states.
Initially, Assam took the same decision as MP to use an existing government
departmentthe Public Works Department (PWD) in this case. As in other cases where
this model was used, the outcomes were poor (Choubey, 2002; Interview 5). The state
then decided to try an arrangement that was conceptually in between MP and Bihar. It
asked public sector engineering departments to give them staff on deputation16, who
would then become part of the project, instead of being outsiders to the process. In
districts where there was not enough staff that could be spared by the departments, the
state recruited from the market (Interview 5, 2003).
This strategy utilised the public sector in a creative manner, different to the
conventional arrangement as used by MP. It used the services of the same staff, but
pulled them out of the working environments of their parent departments and exposed
them to the mission mode working practices of the project. It also made them work side
by side with private sector participants.
The state used private consultants for specialised activities such as resource
mapping, and design preparation. These consultants were not given a central place in the
programme, but played a supporting role, where they provided technical support and
helped in capacity building. The onus of performance was primarily on the engineers.
Like other states that chose this arrangement, Assams performance has been
reasonable to good in all the important components design, quality, community
16Staff on deputation are staff who are transferred (or selected on the basis
of applications) to serve in a different government department for a period.
8/13/2019 Institutional Incentives in Social Infrastructure Provision
33/62
- 28
involvement (Choubey, 2002; TSG 1996-2002). It has performed quite consistently
across the project period, even with leadership changes. In fact, a member of the final
evaluation team for Assam (who is familiar with all DPEP arrangements), was impressed
enough by the consistency of the programme to proclaim it the best in DPEP (Interview
4, 2003).
Agency Chains and Transaction Costs
As evident from figure 8, this arrangement created clear accountability chains.
Since engineers were now part of the project, coordination and information costs were
State Level
State DPEP Society
State Project Director;State Project Engineer
(on contract)
District Engineer(on deputation)
Block Engineer(on deputation/
contract
Village Construction
Committee
District Level
Sub-district
School Level
Figure 8: DPEP Civil Works Management Structure, AssamNote: arrows pointing upwards denote accountability; arrows pointing downwards denote authority
Private consultingarchitectural / engineering
firm (limited strategic role)
8/13/2019 Institutional Incentives in Social Infrastructure Provision
34/62
- 29
much lower. All staff attended training programmes and shared a common knowledge of
the goals and objectives of the programme. Technical training programmes too, had a far
greater effect due to the regular attendance of all implementing staff (Choubey, 2002).
The Assam CWP thus was not faced with the problems of moral hazard and adverse
selection.
DPEP ARRANGEMENT III:RADICALARRANGEMENT IN BIHAR
A radical model was attempted in the state of Bihar. The SPD there had travelled
to other innovative pilot projects before the project began, and had returned inspired to
create a big difference in the state. Upon his return, he hired a private team of local
consulting architects and engineers to work under his guidance and help direct the
programme (Bonner and Mukerjee, 2001). Initially, he did not even hire a state project
engineer for a long time, placing all management responsibility on the consultants.
He also set up in-house implementation cells at the state, district, block and sub-
block levels, staffed by private sector individuals. The arrangement, in effect, was a
rejection of the clientelist public sector in Bihar. This was a sudden, and discontinuous
institutional change (as outlined in North, 1990).
The engineers and supervisors hired to manage the works were local to the setting
and communities where they worked. The consultants, too, were hired on the basis of
being local to the state. These were typically young and enthusiastic professionals who
had trained in other parts of the country with national level firms, and who had returned
anxious to make a difference (Interview 2, 2003).
This arrangement was strongly approved of, and backed by donors, for example:
8/13/2019 Institutional Incentives in Social Infrastructure Provision
35/62
- 30
Bihar has had the most promising school infrastructure delivery
programme under DPEP. Young engineers and architects have been
contracted to develop and implement creative, functional and cost
effective buildings working with local communities in each district
(Bonner and Mukerjee, 2001:9)
State DPEP Society
State LevelState Project Director
(IAS)
District Engineer(on contract)
Block Engineer(on contract)
Supervisor (oncontract), and
Village ConstructionCommittee
District Level
Sub-district
School Level
Figure 9: DPEP Civil Works Management Structure, Bihar
adapted from DOE (1998:16)Note: arrows pointing upwards denote accountability; arrows pointing downwards denote authority
Private consulting architectural /engineering firms
(playing central role)
8/13/2019 Institutional Incentives in Social Infrastructure Provision
36/62
- 31
This arrangement17for a while, created near-perfect outcomes - deep community
involvement; innovative designs; cost-effective construction techniques; quality in
construction; low maintenance buildings; good progress (Bonner and Mukerjee, 2001;
DOE, 1998; TSG 1996-1999). The Bihar programme was arguably the most high profile
at that point, and the second DPEP national cross-state sharing workshop (1998) was
specifically held there to demonstrate good practices to the other DPEP states.
The new institutional arrangement, however, was not sustained, and disintegrated
slowly. The inspirational SPD left in 1997, and the successors did not care to put their
weight behind this new institutional setup that had effectively turned its back on the
traditional ways of working. The raise in consultants inadequate fees did not materialise
as had been promised, and consultants views began to be taken less seriously than they
had before (Interview 3, 2003). The state society showed less and less interest in the
activities and compensation of the private staff. From 1999 to 2001 was a lengthy
period of uneasy and quarrelsome compromise (North, 1990:90). The consultants
reluctantly withdrew from the programme in 2001, and while the in-house engineers
struggled on, they had lost direction.
The earlier enthusiasm seems to be on the wane as there is yet no clear
picture of how secure their futures are going to be. Dispiritedness and a
feeling of being let down is overtaking all the civil works staff that one
met. The lack of a clear policy being articulated and the lack of open
communication on this from the SPO are greatly affecting the morale of
the teams at present (Jandhyala et al., 2003: 26-27).
Progress slowed down considerably from 2001 and targets were not fulfilled.
Bihar suffered the ignominy of being the only DPEP state where infrastructure targets
had to be slashed rather than increased (and the funds reallocated) as the programme
progressed. This was because, as of September 2002, when the programme was supposed
17Which followed the model set in place by a previous similar project, the
Bihar Education project (BEP).
8/13/2019 Institutional Incentives in Social Infrastructure Provision
37/62
- 32
to be drawing to a close, the state had only achieved around 50% of its financial target
a tragedy of substantial proportions for a state that so desperately needs social
infrastructure to be put in place.
Figure 10: Financial Achievement in DPEP-II and III,
September 2002 (data drawn from: TSG, 2002b)
0
20
40
60
80
100
120
APGujarat HP Or
issa UP
WestB
engal Bih
ar
Total target
Achieved Target
Agency Chains and Transaction Costs
Bihars institutional arrangement itself was not the cause of the decline. As in
Assam, the creation of an in-house cell considerably reduced the transaction costs of
information and coordination. Accountability chains, too were very clear and linear, and
did not pose a problem.
A comparison of transaction costs and accountability within the three models, as
shown in figure 11, would show that the Bihar model is likely to perform the best; the
Assam model not as well; and the MP model not well at all. This is a partial but
important explanation of performance patterns within DPEP.
MP Assam Bihar
Transaction Costs HIGH LOW LOW
Accountability LOW MEDIUM HIGH
Figure 11: Transaction Costs and Accountability in Different Arrangements
8/13/2019 Institutional Incentives in Social Infrastructure Provision
38/62
- 33
EXPLAINING PERFORMANCE BY INSTITUTIONAL INCENTIVES
The tools of transaction costs and agency theory have explained performance
only partially. One is still justified in asking the following questions: (1) in MP, why do
not the RES staff work to their potential to fulfil the goals of the project, simply as part
of their duties? In Assam, why did public sector staff put in a much better performance
when on deputation while within the project structure, versus when they were within
their parent departments? In Bihar, why did private staff put in a near-perfect
performance until the support ran out?
Some answers to these questions are provided when the incentives framework
developed in Section II is applied.
Professional Incentives
Within formal context
The formal rules of the game in the civil services make for low professional
incentives - career progression is not based upon performance, but on seniority
(Hughes, 1998). In formal practice, the most serious sanction possible, and the
most commonly used, by a superior is an inconvenient job transfer (Notes 3,
2001). For the engineers in MP and Assam, thus, the formal rules made for low
professional incentives.
For the private participants in Bihar, on the other hand, the formal rules were
highly conducive to good performance for them, good performance would lead
to career progression.18
18Career progression of course, means different things to different people. To
some, good performance and recognition meant the chance of a place in the
8/13/2019 Institutional Incentives in Social Infrastructure Provision
39/62
- 34
Within informal context
DPEP project offices everywhere had a sense of working in a mission mode
together as a team, towards a cause. Informal, yet powerful solidary and
purposive incentives (Clark and Wilson, 1961) were at work in the office
environment. As argued by Ostrom et al., (1993), this environment had a very
positive effect on the performance of engineers in both Bihar and Assam. In MP,
however, the engineers worked from their parent departments, and missed out on
these incentives created by the project environment.
Social Incentives
Within formal context
The project had a high social profile, with every new building inaugurated by
local politicians with much pomp and show. There were ample opportunities for
staff members to appear in the media. Also, the new ways of working, learnt
through regular training programmes meant that staff always had something to
say to local newspapers. Just as in Tendler (1997), this formal social recognition
was a major incentive for staff members to perform.
Now, being part of this social profile was much easier for people working within
the project, such as in Bihar and Assam. The RES in MP were not part of this
scenario due to the imperfect information flows, and poor communication
between them and the project (Interview 1, 2003).
public sector (notes 1, 1999). For the more entrepreneurial, it meant thepossibility of more and better contracts, or jobs with the consultancy firms
directing the project (as happened in many cases).
8/13/2019 Institutional Incentives in Social Infrastructure Provision
40/62
- 35
Within informal context
Many government staff at the local level are motivated to perform by the
(informal) recognition they receive from the community, especially when they
play the iterated games that are essential to the building up of social incentives
(Chong, 1991). The in-house project staff in DPEP had onlyprojectsites allotted
to them (an average of 5 sites per supervisor in Bihar, and an average of 15 sites
per engineer in Assam). Their interaction with the communities was high, and so
were the informal social incentives.
An additional factor was at play in Bihar. The local boys hired by the
programme were previously unemployed or in poorly paying jobs. The new,
prestigious jobs (government-sponsored jobs are considered prestigious in Bihar,
primarily due to the lack of opportunities in the private sector, since big players
have stayed away from the state) spurred them on to establish their social
standing among their local communities (Notes 1, 1999). The social incentives
for Bihar engineers were thus even higher than those in Assam and resulted in
excellent performance.
During the field visits, there was a great deal of satisfaction
expressed by the communities about the technical as well as
emotional support received from the project supervisors and
engineers (Jandhyala et al., 2003: 25).
On the other hand, RES staff in MP handled DPEP project sites in addition to
other works, and were able to involve themselves less intensively. This led to
lower number of interactions and thus lower social incentives. The MP final
evaluation report states that the engineers visited a site just three times in the
8/13/2019 Institutional Incentives in Social Infrastructure Provision
41/62
- 36
entire project period. 19 Technical support to VEC has been a major area of
failure in all sample sites visited (Ramani-Grover, 2003:1).
Economic Incentives
Within formal context
In the cases of both MP and Assam, formal economic incentives are low since
the pay scale of government employees is fixed, and progression is through
seniority and not through performance.
In Bihar, conversely, there was a strong economic incentive to perform since
contracts could be terminated anytime at a months notice.
Within informal context
With the funds in the hands of the Village Construction Committees in all cases,
there were little opportunities for rent seeking (unlike in the conventional model,
where there is a strong incentive to acquire funds through use of poor materials
and so on). As such, there were no informal incentives at play in any of the cases.
Political Incentives
Within formal context
Formally, implementing technical staff is not supposed to be influenced by
politicians, and is supposed to work in the technically optimum manner.
Within informal context
Informally, however, local politicians do exert some influence over implementing
staff. Politicians want greater investment into their constituencies in order to
strengthen their vote bases, and exercise political clout in order to redirect funds
19As against 30-40 times in Bihar (notes 1); or 20-25 times in Assam (notes 4).
8/13/2019 Institutional Incentives in Social Infrastructure Provision
42/62
- 37
meant for communities that may have less voice or who may be marginalised.
Hence, it is common to see engineers manipulating investment priorities to the
overall social detriment. Political incentives, in the informal context, may thus
prove to be inverse.
Most political interference occurs within the specialised departments and not in
the projects, since projects have a more transparent working practice for site
selection. Even so, project staff in Assam and Bihar have mentioned coming
under political pressure to redirect priorities (Notes 1, 1999; Notes 4, 2002). As
such, the political incentives in the informal context may be said to be low.
Conventional
Arrangement
(MP)
Creative
Arrangement
(Assam)
Radical
Arrangement
(Bihar)
Professional Incentives
(Formal Context)LOW LOW HIGH
Professional Incentives
(Informal Context)
LOW HIGH HIGH
Social Incentives
(Formal Context)LOW HIGH HIGH
Social Incentives
(Informal Context)LOW MEDIUM HIGH
Economic Incentives
(Formal Context)LOW LOW HIGH
Economic Incentives
(Informal Context)- - -
Political Incentives
(Formal Context)- - -
Political Incentives
(Informal Context)INVERSE LOW LOW
Figure 12: Institutional Incentives Affecting Performance
of Implementing Staff in Different Arrangements
Tabling the discussion above results in a summary of the web of institutional
incentives affecting performance, as shown in figure 12. Overall, the incentive systems
8/13/2019 Institutional Incentives in Social Infrastructure Provision
43/62
- 38
encouraging good performance are best in Bihar, followed by Assam, with poor
incentives to perform in MP.
Thus far, analysis of the different arrangements through the lenses of agency
chains, transaction costs and institutional incentives, has found that the conventional
arrangement (MP) is likely to perform poorly; the intermediate arrangement (Assam),
satisfactorily; and the radical arrangement (Bihar), very well.
It is now time to explain why, given that some arrangements were demonstrably
better than others, decision makers did, or did not chooseto adopt them.
8/13/2019 Institutional Incentives in Social Infrastructure Provision
44/62
-
IVAPPLICATION PART I I :
EXPLAINING CHOICE
8/13/2019 Institutional Incentives in Social Infrastructure Provision
45/62
- 40
EXPLAINING CHOICE THROUGH INSTITUTIONAL INCENTIVES
Over the ten-year combined project cycle in DPEP (phase - 1 began in 1994),
state-level decision-makers (the SPDs) had ample opportunities to choose to adopt, or
change to, different institutional arrangements in order to achieve better performance.
However,
The agent of change is the individual entrepreneur responding to the
incentives embodied in the institutional framework (North, 1990: 83)
What were the incentives in the institutional framework that these agents of
change were responding to, when confronted with the options to either (1) retain a
conventional arrangement, and likely attain poor performance (MP), (2) switch to an
alternative arrangement and probably achieve reasonable performance (Assam), or (3)
reject the conventional arrangement in favour of a radical one, hoping for high
achievements (Bihar)?
Professional Incentives
Within formal context
Changing institutional arrangements in government means having to make the
staff perform to different specifications. It is far easier to allow set systems of
working to continue. Also, no formal rewards are available here for attempting to
improve existing systems - since again, progression is not based upon
performance, but on seniority (Hughes, 1998). The incentives for change are thus,
inverse.
Furthermore, in attempting to ignore the existing structures (such as in Bihar),
there are three other points that lead to inverse incentives. First, it is the job of
8/13/2019 Institutional Incentives in Social Infrastructure Provision
46/62
- 41
senior bureaucrats, especially at the scale of DPEP (Interview 1, 2003), to usethe
substantial existing government machinery to its maximum effect hiring
private sector agents is effectively an admission of not being able to make the
public sector perform. Secondly, in Bihar (as in most states), the engineering
departments had less work due to decreasing spending power of the government.
Therefore, it made all the more sense to give them the work. Thirdly, the
perception of the leaders is that government staff is easier to take action against
in case they perform poorly (Interview 1, 2003; Interview 6, 2003). This is
especially so in the case of infrastructure programmes, where it is felt that poor
performance may be noticed later (for example, when cracks begin to appear). If
private staff perform poorly and then leave, it becomes difficult to sanction them
later.
Within informal context
In bringing about intermediate change such as in Assam, the decision-maker only
has the informal incentive of the knowledge that this system will likely work
better. Professional satisfaction can be derived in the knowledge that things
could have been worse (Interview 5, 2003).
Interestingly, though, the informal professional incentive to effect radicalchange
such as in Bihar may be very high. As a powerful bureaucrat in the IAS, there can
be a temptation to be the agent of changesince it is the most high-profile cadre
of the Indian bureaucracy, and every action of every individual in it is noticed and
discussed by the wider community donors, the private sector, and civil society
at large. Apart from the purposive incentive, there is undoubtedly a component of
playing to the gallery and demonstrating power (Notes 1, 1999).
8/13/2019 Institutional Incentives in Social Infrastructure Provision
47/62
- 42
On the other hand, this applies only to the decision-maker who has initiated the
change. The successors are faced with a lower incentive of being recognised
only as agents who sustained a change initiated by the predecessor. This incentive,
thus, becomes lower with change in leadership.
Social Incentives
Within formal context
Again, here, the incentives to maintain conventional arrangements are high, and
incentives to change are inverse: in many cases, decision-makers in government
refrain from contract hiring solely due to fear of public scandal over rent-seeking
behaviour in contract hiring (speculative allegations of which are freely made in
local presses) (Notes 5, 2000).
Staff who go on deputation, however, normally volunteer to do so (a more
suitable job location is cited as a common reason to volunteer) and as such there
is no social pressure on decision makers with regard to that change.
Within informal context
Due to the low interaction of these decision-makers with communities, there are
no informal constraints at play.
Economic Incentives
Since salaries are tied to position and not to performance in the civil services,
there is no formal incentive to change.
Again, due to the fact that the village committees were in charge of the funds in
DPEP, there are no rent seeking opportunities either.
8/13/2019 Institutional Incentives in Social Infrastructure Provision
48/62
- 43
Political Incentives
. . . effectiveness as a public administrator is predicated on bothan understanding of politics and of the political process and an
ability to manage public programmes in a political context
(Frederickson, 1989:12, quoted in Hughes, 1997:225).
Within formal context
With politicians frustrated by the decreasing amounts of public funds, and the
increasingly poor spending capacity in the states, there is a general tendency for
them to be more agreeable with cutting public expenditure in whatever way
possible (Interview 5). Politicians apply constant pressure on civil servants to use
existing machinery (Rajasthan Education Minister, 2001). In the formal context,
thus, incentives for involving private sector individuals are low.
This same paradigm ensures a high incentive for the use of government staff,
however. Involving government staff on deputation is to make idle staff active
and this is politically correct and desirable. Being seen as an administrator who
uses resources carefully brings a certain level of political endorsement.
Within informal context
Informally, there is pressure on bureaucrats to perform political favours in the
hiring or transfer of government staff. The process of deputing staff gives some
(albeit limited) leeway for the decision-maker to be able to transfer staff to
favoured locations, and this also helps in political appeasement (Interview 5,
2003; Notes 3, 2001).
8/13/2019 Institutional Incentives in Social Infrastructure Provision
49/62
- 44
Once private staff become involved, on the other hand, the power of the
bureaucrat to perform such favours reduces. In a clientelist environment, such
loss of power is a substantial disincentive to change institutional arrangements.
The above discussion can be summarised in the following matrix of incentives:
Incentives to retain
conventional
arrangement
(such as in MP)
Incentives to change
to intermediate
arrangement
(such as in Assam)
Incentives to
change to radical
arrangement
(such as in Bihar)
Professional
(formal context)
HIGH INVERSE INVERSE
Professional
(informal context)LOW MEDIUM HIGHLOW
Social
(formal context)HIGH - INVERSE
Social
(informal context)- - -
Political
(formal context)HIGH MEDIUM INVERSE
Political
(informal context)HIGH LOW INVERSE
Figure 13: Institutional Incentives of Decision Makers
Affecting Choice of Arrangements
As we can see from figure 13, the incentives for retaining the conventional
arrangement are the highest - this explains why some decision-makers chose to retain
these arrangements throughout the project period in spite of poor performance. This also
explains to some degree why this arrangement exists, and whose interests it serves.
Incentives to effect non-controversial change such as that adopted in Assam, are
conflicting some are inverse while others are medium to low. Here, credit must be
given to the decision-makers for at least overcoming the contradictory incentive structure
to effect the change.
8/13/2019 Institutional Incentives in Social Infrastructure Provision
50/62
- 45
On the face of it, explaining decision-makers withdrawal of support to the Bihar
arrangement was the most difficult, since the arrangement performed so very well. As a
key donor representative stated,
Bihar put in place what I would regard as the ideal management system
for the innovative civil works programme. I cant understand why it
deteriorated. I must confess that, as far as Bihar is concerned, Im still
confused after all these years . . . (Interview 2, 2003).
The incentive structure affecting the decision-makers, however, does give us
important insights into the puzzle. As we have seen, the incentives to effect radical
change, are inverse in the main, with the exception of the informal professional incentive
to be recognised as the agent of change. Only a leader who responds strongly to that
incentive can counter the other inverse incentives and effect such change. When
leadership changes, however, the incentive to continue the change is much lower. This
explains why the radical arrangement was not supported in Bihar by the successors of the
first official, and the arrangement was allowed to decline.
8/13/2019 Institutional Incentives in Social Infrastructure Provision
51/62
-
VCONCLUDING DI SCUSSION
8/13/2019 Institutional Incentives in Social Infrastructure Provision
52/62
- 46
CONCLUDING DISCUSSION
This paper has attempted to analyse and explain the performance, and choice, of
different institutional arrangements used for social infrastructure provision under the
DPEP. Using the tools of the NIE, it evolved and applied a framework of institutional
incentives to these arrangements. This framework looked at the dialogue between
individuals professional, social, economic and political incentives to perform, within the
formal and informal rules of the game (North, 1990).
In order to identify institutional arrangements that lead to better and worse
performance(in a sense, attempting to explain Type I micro-institutional failure), it was
found necessary to apply the framework to the participants within the various
arrangements. In this case, it meant applying the framework to the staff that were in
direct charge of programme management and implementation of the CWP under DPEP.
It was found that the conventional arrangement in India, where specialised
government agencies are directly given the responsibility for this infrastructure provision,
is wanting. The agency problems of moral hazard and adverse selection are not addressed,
and the transaction costs of coordination and information are high. Furthermore, the
institutional incentives at play are not conducive to good performance.
The traditional arrangement is wanting in comparison to an alternative
institutional arrangement such as that followed in Bihar, where the responsibility of
implementation lies with private staff operating under the umbrella of the government
agency. This arrangement, of in-house cells occupied by staff on contract, effectively
reduces the agency problems of moral hazard and adverse selection, and also reduces the
8/13/2019 Institutional Incentives in Social Infrastructure Provision
53/62
- 47
transaction costs of coordination and information. The institutional incentives at play,
moreover, are very conducive to good performance.
However, making the transition from the traditional arrangement to the one
followed in Bihar is not easy. It was found that, after an initial period where Bihar was
best performer, the programme began to lag and finally ended up unable to fulfil its
targets even in numerical terms. This can be called a case of Type II micro-institutional
failure, where the process for changing the institutional arrangement resulted in a lower
set of benefits for society compared to an alternative process over a given period (Khan,
1995).
The alternative process for changing the institutional arrangement that resulted
in better outcomes was the process adopted in states like Assam. Here, instead of turning
its back on the traditional institutional arrangement, the programme creatively
incorporated a mix of traditional and alternative mechanisms. While it did set up an in-
house cell, and it did hire some staff on contract, it also took care to recruit key staff on
deputation from government departments. Agency problems and transaction costs were
again reduced, and the institutional incentives at play took on a different, more positive,
hue.
In order to fully explain choice in institutional arrangements, it was found
necessary to apply the incentives framework not to the implementation level, but to the
decision-making level. At this level, it was found that the incentives to initiate full-scale,
or radical change were inverse, and in Bihar it took a person extraordinarily motivated to
attain professional satisfaction to attempt such a change. However, the inverse incentives
acted upon his successors, and the programme wilted. On the other hand, the
intermediate change of Assam was much more in line with incentives structures of
decision makers, which is why it was taken up in many states. While these states were
8/13/2019 Institutional Incentives in Social Infrastructure Provision
54/62
- 48
not able to demonstrate results such as those that Bihar had shown for a short period,
they nevertheless showed reasonable and consistent performance.
The majority of states chose the intermediate solution and produced satisfactory
or better performance. This points to the following:
the incremental change by these states was independent of personality. The
institutional incentives at work were conducive to such arrangements.
Because of the above, this change is sustainable and can lead later to more
change. For example, many states, while deciding their CWP management
structures in SSA, are continuing the systems adopted under DPEP. States
that are beginning SSA without prior experience of DPEP (such as Punjab,
and Jammu and Kashmir) are closely examining these systems, and are likely
to adopt them as well (Interview 1, 2003).
Conclusion
While this dissertation does not claim to have found results that can be
generalised across different contexts, it has established evidence to make the following
argument: while certain types of institutional arrangements may be demonstrably better
than existing ones, making the transition to those arrangements may not be possible in
the overall institutional structure, which is made up of formal and informal constraints.
This is especially because that structure gives rise to incentive systems of the
participating individuals, that may be adverse to the better institutional arrangement.
When introducing change, therefore, it is essential to first examine the institutional
incentives at play and then decide on the arrangement to be followed. While it may not
be possible to install the arrangement that is theoretically most efficient, it will be
8/13/2019 Institutional Incentives in Social Infrastructure Provision
55/62
- 49
possible to nudge at the institutions that have got locked in (Nugent, 2002), and move
them step by step in a more practical manner towards efficiency.
8/13/2019 Institutional Incentives in Social Infrastructure Provision
56/62
-
WORKS CITED/CONSULTED
8/13/2019 Institutional Incentives in Social Infrastructure Provision
57/62
- 50 -
WORKS CITED
Arrow, K.J (1985) The Economics of Agency. In J.Pratt and R.Zeckhauser (eds.),
Principals and Agents: The Structure of Business, Boston: Harvard Business
School Press, 37-51.
Bonner, R and S.Mukerjee (2001), Overview of DfID Experience in the Infrastructure
Sector in Primary Education Programmes in India
[http://www.dfid.gov.uk/AboutDFID/Education/publications/Scoping/DFID%20
India%20Experience.pdf], August 24, 2003.
CBRI (Central Buildings Research Institute, India) (2000), A Study of Building
Component of OB Scheme, Roorkee: CBRI.
Chong, D (1991), Collective Action and the Civil Rights Movement, Chicago: The
University of Chicago Press.
Chong, D (2000), Rational Lives: Norms and Values in Politics and Society,
Chicago: The University of Chicago Press.
Choubey, M (2002), Assam DPEP: Civil Works in Phase I Districts: Evaluation Report
of the National Team, unpublished final report prepared for DOEEL.
Clark, P. and J.Wilson (1961), Incentive Systems: a Theory of Organisations. In
Administrative Science Quarterly, Volume 6 (2), 129-166.
DfID (2002), Making Connections: Infrastructure for Poverty Reduction,[http://www.dfid.gov.uk/Pubs/files/making_connection1.pdf], August 10, 2003.
DOE (Department of Education, Ministry of Human Resource Development,
Government of India) (1995), DPEP Guidelines, New Delhi: NCERT on behalf
of DOE.
DOE (1998), Civil Works Under DPEP: An Overview, New Delhi: Ed.CIL.
DOE (1999a),Building Rural Primary Schools: Towards Improved Designs, New
Delhi: EdCIL.
DOEEL (Department of Elementary Education and Literacy) (2002), Sarva Shiksha
Abhiyan, a Programme for Universal Elementary Education: Framework
for Implementation, New Delhi: Ed.CIL
DPEPMIS (2001), DPEP Coverage, 2001
[http://www.dpepmis.org/webpages/dpepdistricts.htm], August 28, 2003
Frederickson, H.G (1989), How Politics Affects Public Programs. In R.E.Cleary,
N.Henry and Associates, Managing Public Programs: Balancing Politics,
Administration and Public Needs, San-Fransisco: Jossey-Bass
8/13/2019 Institutional Incentives in Social Infrastructure Provision
58/62
- 51 -
Grover, A (2002), Karnataka DPEP: Civil Works in Phase I and II Districts: Evaluation
Report of the National Team, unpublished final report prepared forDOEEL.
Harriss, J (2002), Institutions, Politics and Culture: A Case for Old Institutionalism in
the Analysis of Historical Change, unpublished working paper, Development
Studies Institute (DESTIN), London School of Economics and Political Science,London.
Harriss, J, J.Hunter and C.M.Lewis (1995), Introduction: Development and
Significance of NIE. In J.Harriss, J.Hunter and C.M.Lewis (eds.), The New
Institutional Economics and Third World Development, London: Routledge,
1-13.
Hughes, O.E (1998), Public Management and Administration: An Introduction,
Basingstoke: Macmillan Press.
Interview 1 (2003), S.Banerjee, Chief Consultant, Civil Works Unit, TSG, overtelephone, June 15; July 20; July 25 and August 10.
Interview 2 (2003), R.Bonner, senior UK-based infrastructure specialist and ex-DfID
UK, over telephone, July 25.
Interview 3 (2003), S.Jha, director, Vikalp, ex-consultant to Bihar DPEP, consultant to
various DPEP and SSA states, over telephone, July 26.
Interview 4 (2003), M.Chowbey, director,Design Avenues, consultant to MP DPEP and
part of evaluation team to Assam DPEP, over telephone, July 26.
Interview 5 (2003), Anonymous, senior IAS official closely linked to DPEP at both
national and state level, over telephone, July 27.
Interview 6 (2003), Anonymous, senior IAS official closely linked to DPEP at both
national and state level, over telephone, August 08.
Israel, A (1987), Institutional Development: Incentives to Performance, London:Johns Hopkins University Press, [for] the World Bank.
Jandhyala, K., Y.Prasad and S.Vaidyarajan (2003), Evaluation of Civil Works: BiharDistrict Primary Education Project, unpublished final draft report prepared for
DOEEL.
Khan, M (1995), State Failure in Weak Stat