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Local government consolidations: The impact of political transaction costs

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  • Rune Sørensen

Abstract

Local government in Norway comprises a large number of small municipalities. Cost efficiency can be improved by consolidating local authorities, and central government has designed a framework to stimulate voluntary mergers. Existing theories suggest that political transaction costs will impede consolidations. (1) Generous grants compensate diseconomies of scale. Central government has promised small municipalities that grant levels will be maintained, but policy promises may not be credible. (2) Property rights to local revenues are nullified when consolidations have been implemented. High-revenue municipalities will therefore go against merger with a poorer neighbor. (3) A consolidated local council may be composed of different political parties, and it may therefore pursue other policies than an existing council. Expected changes in party strength can lead municipalities to oppose a proposed consolidation. (4) Senior politicians are less likely to support mergers, particularly if they come from small polities. We offer an explicit test of these propositions based on data for Norwegian local government. Elected politicians and administrative leaders are more interested in consolidating when efficiency gains are large. Local revenue disparities and to some extent dissimilar party preferences are significant impediments to voluntary mergers. Additionally, smaller municipalities are often prepared to sacrifice some efficiency gain to remain independent polities. Copyright Springer Science + Business Media, Inc. 2006

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  • Rune Sørensen, 2006. "Local government consolidations: The impact of political transaction costs," Public Choice, Springer, vol. 127(1), pages 75-95, April.
    • Handle: RePEc:kap:pubcho:v:127:y:2006:i:1:p:75-95
    DOI: 10.1007/s11127-006-7106-8
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    2. Hans Pitlik & Klaus Wirth, 2012. "Gemeindestrukturreformen und Gemeindekooperation," WIFO Monatsberichte (monthly reports), WIFO, vol. 85(12), pages 957-967, December.
    3. Dur, Robert & Staal, Klaas, 2008. "Local public good provision, municipal consolidation, and national transfers," Regional Science and Urban Economics, Elsevier, vol. 38(2), pages 160-173, March.
    4. Francesca Bartolacci & Rosanna Salvia & Giovanni Quaranta & Luca Salvati, 2022. "Seeking the Optimal Dimension of Local Administrative Units: A Reflection on Urban Concentration and Changes in Municipal Size," Sustainability, MDPI, vol. 14(22), pages 1-17, November.
    5. Edoardo Di Porto & Vincent Merlin & Sonia Paty, 2013. "Cooperation among local governments to deliver public services : a "structural" bivariate response model with fixed effects and endogenous covariate," Working Papers halshs-00787600, HAL.
    6. Roberto Paladini, 2020. "La partecipazione dei cittadini nei processi di fusione di comuni in veneto: un?occasione mancata?," ECONOMIA E SOCIET? REGIONALE, FrancoAngeli Editore, vol. 0(3), pages 105-128.
    7. Luiz de Mello & Santiago Lago-Pe-as, 2013. "Local government cooperation for joint provision: the experiences of Brazil and Spain with inter-municipal consortia," Chapters, in: Santiago Lago-Peñas & Jorge Martinez-Vazquez (ed.), The Challenge of Local Government Size, chapter 9, pages 221-241, Edward Elgar Publishing.
    8. Edoardo Di Porto & Angela Parenti & Sonia Paty & Zineb Abidi, 2017. "Local government cooperation at work: a control function approach," Journal of Economic Geography, Oxford University Press, vol. 17(2), pages 435-463.
    9. Dino Rizzi & Michele Zanette, 2015. "A Procedure for the Ex-Ante Assessment of Compulsory Municipal Amalgamation Programs," Working Papers 2015:22, Department of Economics, University of Venice "Ca' Foscari".
    10. Sršen Andreja, 2018. "The Aspects of National Branding: Conceptual and Theoretical Framework," European Journal of Interdisciplinary Studies Articles, Revistia Research and Publishing, vol. 4, ejis_v4_i.
    11. Pierre Magontier & Albert Solé-Ollé & Elisabet Viladecans Marsal, 2021. "The Political Economy of Coastal Development," CESifo Working Paper Series 9059, CESifo.
    12. Clémence Tricaud, 2019. "Better alone? Evidence on the costs of intermunicipal cooperation," Economics Working Paper from Condorcet Center for political Economy at CREM-CNRS 2019-12-ccr, Condorcet Center for political Economy.
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    14. David M. Brasington & Olivier Parent, 2017. "Public school consolidation: a partial observability spatial bivariate probit approach," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 180(2), pages 633-656, February.
    15. Hans Pitlik & Klaus Wirth & Barbara Lehner, 2010. "Gemeindestruktur und Gemeindekooperation," WIFO Studies, WIFO, number 41359, April.
    16. Takeshi Miyazaki, 2014. "Municipal consolidation and local government behavior: evidence from Japanese voting data on merger referenda," Economics of Governance, Springer, vol. 15(4), pages 387-410, November.
    17. Takeshi Miyazaki, 2018. "Internalization of externalities and local government consolidation: empirical evidence from Japan," Empirical Economics, Springer, vol. 54(3), pages 1061-1086, May.
    18. Miyazaki, Takeshi, 2013. "Municipal Consolidation and Local Government Behavior: Evidence from Japanese Voting Data on Merger Referenda," Discussion Paper Series 588, Institute of Economic Research, Hitotsubashi University.
    19. Sebastian Blesse & Felix Rösel, 2017. "Gebietsreformen: Hoffnungen, Risiken und Alternativen," ifo Working Paper Series 234, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.

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