Presentation by Guido de Blasio, Bank of Italy at the OECD Workshop on Spatial Dimensions of Productivity, 28-29 March 2019, Bolzano. More info: https://oe.cd/GFPBolzano2019

1. INCENTIVES TO LOCAL PUBLIC SERVICE PROVISION:
AN EVALUATION OF ITALY'S OBIETTIVI DI SERVIZIO
Guglielmo Barone, Bank of Italy
Guido de Blasio, Bank of Italy
Alessio D’Ignazio, Bank of Italy
Andrea Salvati, Rice University

2. Obiettivi di Servizio (ODS)
• Incentives to public administrations to enhance the
provision and the quality of local public services (LPS)
• Applied to the administrations of the regions of Southern
Italy (the area of the country lagging behind) during the
2007-13 EU programming cycle
• 4 areas: education, child and elderly care, water service,
and waste management
• The scheme was based on outcome-based indicators and
quantitative targets
• Incentives: money and grassroots monitoring

4. Evaluating the ODS
• Did the scheme work?
Use CN regions as counterfactuals
• Why it did in some cases and not in others?
Drivers of effectiveness
• Were there unintended consequences?
Areas/outcomes not covered under the program:
Transportation/Education

5. Description of the ODS

6. Few goals and a timeframe
• 4 LPS areas, 11 outcome indicators, details
• Established in 2007; final deadline for target attainment
2013
• Small number of targets: the Central Gov. wanted the
local Gov.s to focus their efforts on few goals
• Targets were common across regions, they reflected
some basic, indispensable, output for public service
provision

7. Indicators and targets
back

8. Money and grassroots monitoring
• Total financial rewards initially € 3 billion (0.81% of the GDP of
the treated regions). Budget reductions (from €3b to €1b).
Regions were encouraged to use additional funds locally
available (other transfers anyway) to supplement ODS money.
Total funds were allocated uniformly across the 4
categories (not always uniformly across targets within
categories). For each target, the distribution across
regions followed a criteria based on each region’s GDP and
population level
• Money was only part of the incentive package!
Accountability channel. Establishing easy-to-measure
targets - and monitoring the progress of each region
towards the attainment of the targets - should have
spurred citizen participation and local elite’s responsibility

9. Two aspects of the design
• Common targets, but different starting points
• The funds attached to each indicator could be received
independently from the progresses made in the other
indicators
example

10. Example
back

11. Did the scheme work?

12. Average progress (indicators)

13. Average progress (regions)

14. Was the improvement due to ODS?

15. Estimating the impact of the scheme
• We use a DID approach, adopting as control group the 12
Central-Northern Italian regions which were not treated
We run 88 DID regressions (8 treated regions by 11 ODS
indicators): 𝑦𝑟𝑡 = 𝑐𝑜𝑛𝑠𝑡𝑎𝑛𝑡 + 𝛿 𝑂𝐷𝑆 𝑟 × 𝐷𝑡 + 𝜆 𝑡 + 𝜇 𝑟 + 𝜀 𝑟𝑡
• The estimates vary dramatically across both treated
regions and indicators:
a positive impact for 24 cases out of 88
a negative impact for 34 cases out of 88
zero impact for 30 cases out of 88

16. Why did the ODS work in some cases
and not in others?
• We look for region- or region/indicator-specific factors that might be
systematically associated with ODS performance
• We consider the following drivers:
– Initial distance to the target
– Financial reward associated to the target
– Local institutional quality (2010 European QoG Index)
– Political alignment with the Central Govt.
• Findings:
Distance (discouragement) impacts on performance only for urban waste
The quality of institutions is highly correlated with good performance
(except for education)
No clear results for political alignment and financial reward

17. Are there unintended consequences of
the ODS for other LPS?

18. Displacement across LPS
• The Regions could have strategically allocated their
efforts, favoring LPS involved in the scheme over LPS not
involved
• We provide a test on transportation, which is an example
of a key non-ODS LPS financed and managed locally
• We compare a non-ODS indicators between ODS and
non-ODS regions (km of the local transport network,
availability of parking spaces, # of people served, # of
seats offered)
• Findings: local authorities involved in ODS performed
relatively worse than those not part of the program

19. Displacement within ODS LPS
• The Regions could have strategically allocated their
efforts, favoring ODS targets over non-targeted indicators
within the same LPS area
• We provide a test on the education area
• We compare non-ODS indicators between ODS and non-
ODS regions (employees and unemployed in learning and
development; adults in lifelong learning, tertiary
education rate)
• Findings: local authorities involved in ODS performed
relatively worse than those not part of the program

20. Implications
• The extent of ownership should be made contingent on
the local institutional quality
• Future incentive schemes should try to attach higher
financial rewards to more distant targets (alternatively, the
target should be defined in terms of progress from the
initial conditions)
• Impose constraints on LPS not covered; with very specific
targets under the program, constraints on the overall
evolution of a given LPS area should be considered