This article examines decentralization through the lens of the local dynamics it unleashed in the much-noted case of Bolivia. It argues that the national effects of decentralization are largely the sum of its local-level effects. To understand decentralization, therefore, we must first understand how local government works. The article explores the deep economic and institutional determinants of government quality in two extremes of municipal performance. From this it derives a model of local government responsiveness as the product of political openness and substantive competition. The quality of local politics, in turn, emerges endogenously as the joint product of the lobbying and political engagement of local firms and interests and the organizational density and ability of civil society. The analysis tests the theory's predictions on a database containing all Bolivian municipalities. The theory proves robust. The combined methodology provides a higher-order empirical rigor than either approach can alone.