Counter factual reasoning is a concept that involves constructive representation in which the researchers imagine the alternative to existing theoretical assumption, constructs and models. In this article, the concept is applied to develop an alternative thinking concerning the performance of decentralized system of public administration in Tanzania. Overall, a theory of public administration predicts four main objectives to be realized by the decentralized system. This includes improved local democracy, allocative efficiency, cost efficiency and tailor made services. On the contrary, in developing countries and Tanzania in particular, these objectives have not been fully attained. Although a theory and empirical literature suggest some factors explaining its short fall, overall it does not paint a full picture on the factors which are responsible for its failure. Instead, the mainstream literature focus on formal design of the system and the availability of resources and it neglects the informal institutions which guide the behavior of the actors involved in service delivery. In order to shed light on this puzzle, this article uses problematization method of counterfactual reasoning to develop an alternative model. The model is grounded on social logical institutionalism which suggests that goals and interests of actors are not given by nature, but result from the expectations created by the formal and informal institutions. This suggest that to understand why the performance of the decentralized system falls short, it is necessary to take into account: the formal institutions, the informal institutions and the availability of resources as a condition for service delivery. Therefore, unlike the default model which suggest two variables: the design of the system and the availability of resources, the alternative model suggests three variables: the formal design of the system, informal institutions and the availability of resources as explanatory factors to the performance of decentralized system of public administration in Tanzania.