Decentralization and Benefits of Local Governments Formation from the Efficiency Point of View

According to public economics theories, decentralization leads to more efficiency of public sector policies. Decentralization policies have some benefits and costs which are different in various countries according to their structures and the level of decentralization. This article focuses on increasing public sector efficiency as one of the benefits of decentralization policies. Therefore, the article uses a new approach based on conventional tools in microeconomics as well as maximum of median consumer's utility to study the effects of decentralization on economic efficiency. The findings of analytical study show that the devolution of authorities to local government may lead to increasing of economic efficiency.