Public Governance

PUBLIC GOVERNANCE INSTITUTIONS, INCENTIVES AND OUTCOMES IN THE PUBLIC SERVICES MARKETS R.N. GUPTA CONTENTS Introduction: Micro Institutions in the Governance Markets Part I From Government to Governance Chapter 1 Public Governance: The Four Dimensions Chapter 2 India: ‘Planning’ for Governance Chapter 3 Incentives, Behaviour and ‘Rules of the Game’: A Framework Chapter 4 Governance Markets: Taxonomy of Public Services Part II Alpha ‘Contingent’ Services Chapter 5 Registration of Births and Deaths: ‘From Cradle to Grave’ Chapter 6 Verification of Caste Certificates: A ‘Cascade’ of Ignorance Chapter 7 Motor Vehicle Regulations: Rash or Negligent! Chapter 8 Civic Regulations for Buildings: Roof for Citizens Chapter 9 Transparency: The Market for Information Chapter 10 Alpha Services: Aligning Incentives and Institutions Part III Beta Services: Economic and Social Regulations Chapter 11 Labour Laws: Regulation ‘in Excess of Situation’ Chapter 12 Fertilizers Quality: Neglect of Incentives Chapter 13 Emigration Law: The Ban on Rational Behaviour Chapter 14 Immoral Traffic (Prevention) Act: Regulating Public Morality Chapter 15 Beta Regulations: The Coaseian Alternative Part IV Delta and Gamma Services: Positive and Negative Public Goods Chapter 16 Infrastructure and Public Health Chapter 17 School Education: ‘Predation’ of The Right to Educate Chapter 18 Higher Education: More Regulation Equals Less Competition Chapter 19 Donation of Human Organs: Incentives for Altruism Chapter 20 Crime and Punishment: ‘Nudges’ for Police, Victims and Criminals Chapter 21 Managing Environment: Information, The Key Incentive Chapter 22 Corruption: The ‘Moral’ of Incentives Part V Alpha and Omega of Public Services Chapter 23 Poverty Alleviation: Harnessing ‘Wisdom of the (Poor) Crowds’ Chapter 24 Micro Rules and Institutions: Problems, Possibilities and Prospects Chapter 25 Conclusion: Designing Institutional ‘Nudges’ for Public Services INTRODUCTION MICRO INSTITUTIONS IN THE GOVERNANCE MARKETS The assumptions, hypotheses and axioms, underpinning the book, are somewhat easily stated, though may not be so easily demonstrated. Public governance, in general discourse and practice, is mostly about the macro level economic and social policies and practices. This obsession is similar to the preoccupation of economists, and even the intelligentsia, with macro economics (micro economics appears to have been only recently been rehabilitated by behavioural economics). The discourse and practice in the case of ‘public governance’ – as distinguished from corporate governance - needs to shift from macro policy, and its formulation processes, context, delivery structures and agents, to the micro level ‘interactive governance’, the ‘play of the game,’ in the delivery and exchange of various public services and regulations. The micro ‘rules of the game’, which are mostly formal and written down, are more relevant than the macro policy design and structure, for understanding governance failure, which is reflected in imperfect exchanges, high transaction costs and the truncated, and sometimes even decapitated, outcomes. These rules need to take into account, not only the incentives of the citizens and the delivery agents, the government officials, but also their cognitive limitations and biases, and the government agencies need to design these rules, keeping in view the insights provided by behavioural economics. Governance Interactions: ‘Play of the Game’ Interactions of the government and the private actors in the course of delivery of public services do get mentioned, but only as ‘case studies’ of the delivery mechanisms, in the context of their relevance to macro or policy governance. Some authorities tend to focus on the attributes of good government, its ‘steering’ capacity, the skills and capacity of the government agents, and the innovative methods and ‘best practices’ in the implementation of macro policies. The route to understanding and improving public governance, however, appears to lie through ‘micro governance’, the public agent-citizen interactions, exchanges and transactions, the ‘play of the game’ on the ‘playgrounds,’ the markets for public services. Acemoglu1 points outs the need to attend to the micro market failures as these may lead to macro institutional failures; micro governance, however, is not just the 1 implementation ‘tail’ of the policy frame. Charles Cadwell in the Preface to Power and Prosperity2 refers to Mancur Olson’s contribution in identifying the main springs, the ‘jugular’ of the social and economic structures, and his somewhat disparaging remarks about some “researchers having an instinct for ‘capillaries’ rather than the ‘jugular’”. In public governance, however, these ‘capillaries’ are, many a time, all that matters. Operational ‘Rules of the Game’ Second, the micro rules and institutions governing the ‘play of the game’ appear to affect the outcomes of policy even more than the delivery structures and resources. The asymmetry, between the macro institutions of a public policy and its ‘field’ outcomes, may need to be addressed primarily through the micro rules and institutions, which influence and affect incentives of the parties - government agencies/actors and the citizens/private parties - to the governance interactions much more directly and immediately than the macro policy and institutions. Moreover, the context of the governance exchanges is generally ‘given’, rarely determined by the policy, and as such, difficult to restructure. It is, therefore, primarily through the formal rules rather than the design of situations that we can hope to influence incentives of the parties and the outcomes of governance exchanges. In the language of the chaos theory, the rules can change the ‘initial conditions’, which is impossible in the natural world. One needs to work, therefore, with the micro institutions, rather than bemoaning the incapacity of macro political and economic institutions, which we can do pretty little about considering that even experts tend to disagree on their design and structure. The formal ‘rules of the game’ can have a trajectory independent of their history, unlike the macro institutions which are much more ‘path dependent’. Agency Incentives and Rules Three, the micro rules, mostly formal and codified, need to address the incentives not only of the citizens but also of the ‘street level’ government agents and actors. Most of the civil servants spend their official careers drafting tens or even hundreds of rules that are designed to influence the behaviour of the private agents and the officials in a number of areas of administrative, economic and social interactions; for the latter, elaborate Rules of Service and Conduct are also available; these formal rules define the boundaries, limits and contours of procedures, processes and actions. Incentives and the likely behaviour of the 2 public and the agents of the State are, however, rarely factored in the design of rules. The ‘human’ dimension of the citizen-government interactions in public governance tends to be ignored, unlike the area of social interactions. The touchstone of the market is not available, and, if available, ignored. What we are concerned with here, is not the design of macro rules, institutions and policies, but the ‘rules of the (specific) games’, public services and regulations, and how they affect the incentives and outcomes in the ‘governance markets’ for different services - a sort of ‘backward mapping’ starting from the outcomes, agent behaviour, and incentives to the design of rules. The design of micro rules needs to take note, not only, of the material incentives of the parties, but also their affective, intuitive and cognitive biases and dispositions. Micro governance in the case of most of the public services is best understood through the economic framework – incentives of the parties - rather than the governing structures, systems and mechanisms, the organisations implementing the policy and the quality and capacity of the agents delivering the product. Self-interest, indeed, is material in the economic interactions, even though one may not go as far as Gary Becker who argued that economic incentives govern social and even family interactions. The relevance of ‘humans’ (of agents as well as citizens and their motives) does not, however, appear to have been adequately appreciated while designing the rules of interaction in public governance. Micro governance neither demands nor hopes for omnibus solutions even in the broad sectors like health or education. The problems of absenteeism, of quality of education etc. are subject to very different incentives and a single strategy may not be applicable for ensuring the attendance of the students as well as of the teachers. A vegetable market is very different from a share market. While free bed nets may be a solution for malaria, free medicines may not be enough for AIDS and even tuberculosis – the patient in the former case may not even volunteer, and, in the latter, may not consume the antibiotics as per the required protocol. The incentives of the government agents are also as important, as those of the public, in affecting the quality and outcomes of governance exchanges. 3 Incentives and ‘Nudges’ in Public Governance Four, we need to adopt an approach based on ‘nudges’ and mild incentives to address the irrationality and biases of the human actors rather than depending, as the rule makers mostly tend to do, on mandatory and absolute ‘bans’ and restrictions. Behavioural

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