Common pool problems in voluntary municipal mergers
Autor: | Tuukka Saarimaa, Janne Tukiainen |
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Rok vydání: | 2015 |
Předmět: |
Economics and Econometrics
Common pool media_common.quotation_subject Microeconomics difference-in-differences Debt ddc:330 Economics free-riding media_common Finance law of 1/n business.industry jel:D72 jel:H73 jel:H72 jel:H77 municipality mergers Difference in differences Free riding Common pool difference-in-differences free-riding law of 1/n municipality mergers Incentive Merger process Turnover Cash Political Science and International Relations business |
Zdroj: | European Journal of Political Economy. 38:140-152 |
ISSN: | 0176-2680 |
Popis: | We analyse free-riding behaviour of Finnish municipalities prior to voluntary municipal mergers. The merger process creates a temporary common pool problem, because of a delay from the initial decision to the actual merger during which municipalities stay autonomous. Using a difference-indifferences strategy, we find that the stronger free-riding incentive a municipality faced the more it increased its debt and spent its cash reserves. These funds were spent mostly on investments and current expenditures. The results can be attributed to the "law of 1/n" rather than to responding to an anticipated loss of political power or voluntary transfers between merging municipalities. Besides providing a test of the law of 1/n, our results suggest that local jurisdiction mergers are likely to involve a substantial (one-time) cost due to free-riding. This leads to two policy implications. First, during a merger process, some financial constraints on the local level may be a good idea to mitigate common pool problems. Second, for the merger policy to achieve the goal of decreasing public spending without reducing service quality, the scale economies need to be fairly large. Our results should be of wider interest, not only because mergers are used extensively in various countries, but also because common pool problems are present in many other contexts, such as (local) governments bail outs. |
Databáze: | OpenAIRE |
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