IDEAS home Printed from https://ideas.repec.org/a/kap/pubcho/v46y1985i1p79-86.html
   My bibliography  Save this article

Economic incentives under contract supply of local government services

Author

Listed:
  • Stephen Mehay
  • Rodolfo Gonzalez

Abstract

It has been argued that organizations which are unable to directly appropriate any of the firm's residual earnings tend to experience various forms of wealth-taking by managers (Alchian and Kessel, 1962). This wealth-taking has been observed in privately-owned, regulated firms (Nelson, 1980) as well as in government-operated bureaus. The results in this paper suggest that the X-inefficiency associated with various forms of wealth-taking may be constrained when external, competitive pressures exist. Niskanen argued that one strategy for reducing the inefficiency associated with monopoly bureaus would be to set up two bureaus to compete for the sponsor's budget in order to generate better information on cost and production functions. At the local level, the Lakewood Plan, by generating information on actual production cost to purchasing cities and to unincorporated area residents, appears to create the desired effect. By generating this flow of information on cost, the Lakewood Plan eases the task of monitoring the performance of county departments. Second, the threat of entry posed by the city bureau, which can always produce services in-house, appears to effectively constrain the X-inefficiency of the county supplier bureaus. Combined with Deacon's (1979) results, this study suggests that the Lakewood Plan improves overall efficiency in the local government services market in several ways. First, it allows small cities to exploit scale economies by purchasing services from large scale producers. Second, it preserves local autonomy and avoids the welfare losses associated with centralized government (Barzel, 1969). Finally, it imposes some competitive pressure on the producing department ot eliminate managerial inefficiencies. In this era of tax and spending limitations, municipal governments are in dire need of alternative mechanisms for maintaining service levels without increasing service costs. The accumulating evidence suggests that contracting with larger governmental entisties may yield net benefits to both the governmental unit supplying the services (and its clients) as well as to the governmental unit purchasing the services. Copyright Martinus Nijhoff Publishers 1985

Suggested Citation

  • Stephen Mehay & Rodolfo Gonzalez, 1985. "Economic incentives under contract supply of local government services," Public Choice, Springer, vol. 46(1), pages 79-86, January.
    • Handle: RePEc:kap:pubcho:v:46:y:1985:i:1:p:79-86
    DOI: 10.1007/BF00150966
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/BF00150966
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/BF00150966?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Robert Deacon, 1979. "The expenditure effects of alternative public supply institutions," Public Choice, Springer, vol. 34(3), pages 381-397, September.
    2. Epple, Dennis & Zelenitz, Allan, 1981. "The Implications of Competition among Jurisdictions: Does Tiebout Need Politics?," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1197-1217, December.
    3. Romer, Thomas & Rosenthal, Howard, 1979. "The elusive median voter," Journal of Public Economics, Elsevier, vol. 12(2), pages 143-170, October.
    4. Brennan,Geoffrey & Buchanan,James M., 2006. "The Power to Tax," Cambridge Books, Cambridge University Press, number 9780521027922.
    5. Thomas Romer & Howard Rosenthal, 1978. "Political resource allocation, controlled agendas, and the status quo," Public Choice, Springer, vol. 33(4), pages 27-43, December.
    6. Stephen L. Mehay, 1979. "Intergovernmental Contracting for Municipal Police Services: An Empirical Analysis," Land Economics, University of Wisconsin Press, vol. 55(1), pages 59-72.
    7. Yoram Barzel, 1969. "Two propositions on the optimum level of producing collective goods," Public Choice, Springer, vol. 6(1), pages 31-37, March.
    8. Primeaux, Walter J, Jr, 1977. "An Assessment of X-Efficiency Gained through Competition," The Review of Economics and Statistics, MIT Press, vol. 59(1), pages 105-108, February.
    9. Walter Hettich, 1975. "Bureaucrats and public goods," Public Choice, Springer, vol. 21(1), pages 15-25, March.
    10. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64(5), pages 416-416.
    11. Romer, Thomas & Rosenthal, Howard, 1982. "Median Voters or Budget Maximizers: Evidence from School Expenditure Referenda," Economic Inquiry, Western Economic Association International, vol. 20(4), pages 556-578, October.
    12. Nelson, Randy A, 1980. "Revenue Contributions and Efficiency in Municipal Utilities," Economic Inquiry, Western Economic Association International, vol. 18(3), pages 509-513, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Olivia S. Mitchell, 1998. "Administrative Costs in Public and Private Retirement Systems," NBER Chapters, in: Privatizing Social Security, pages 403-456, National Bureau of Economic Research, Inc.
    2. Miles Finney, 1997. "Scale Economies And Police Department Consolidation: Evidence From Los Angeles," Contemporary Economic Policy, Western Economic Association International, vol. 15(1), pages 121-127, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Bruno S. Frey & Alois Stutzer, "undated". "The Role of Direct Democracy and Federalism in Local Power," IEW - Working Papers 209, Institute for Empirical Research in Economics - University of Zurich.
    2. Bruno S. Frey, "undated". "Direct Democracy for Transition Countries," IEW - Working Papers 165, Institute for Empirical Research in Economics - University of Zurich.
    3. Tracy Gordon, 2009. "Bargaining in the shadow of the ballot box: causes and consequences of local voter initiatives," Public Choice, Springer, vol. 141(1), pages 31-48, October.
    4. Rodolfo Gonzalez & Stephen Mehay, 1985. "Bureaucracy and the divisibility of local public output," Public Choice, Springer, vol. 45(1), pages 89-101, January.
    5. Eric J. Brunner & Stephen L. Ross, 2007. "How Decisive Is the Decisive Voter?," Working papers 2007-28, University of Connecticut, Department of Economics, revised Aug 2008.
    6. Stephen Billings & Thomas Thibodeau, 2011. "Intrametropolitan Decentralization: Is Government Structure Capitalized in Residential Property Values?," The Journal of Real Estate Finance and Economics, Springer, vol. 42(4), pages 416-450, May.
    7. George Crowley & Russell Sobel, 2011. "Does fiscal decentralization constrain Leviathan? New evidence from local property tax competition," Public Choice, Springer, vol. 149(1), pages 5-30, October.
    8. Benoît Le Maux, 2009. "Governmental behavior in representative democracy: a synthesis of the theoretical literature," Public Choice, Springer, vol. 141(3), pages 447-465, December.
    9. Rebecca Diamond, 2017. "Housing Supply Elasticity and Rent Extraction by State and Local Governments," American Economic Journal: Economic Policy, American Economic Association, vol. 9(1), pages 74-111, February.
    10. Dennis Leyden, 1988. "Intergovernmental grants and successful tax limitation referenda," Public Choice, Springer, vol. 57(2), pages 141-154, May.
    11. Bruno S. Frey & Alois Stutzer, "undated". "Direct Democracy: Designing a Living Constitution," IEW - Working Papers 167, Institute for Empirical Research in Economics - University of Zurich.
    12. Frey, Bruno S., 2004. "Direct Democracy for a Living Constitution," Freiburg Discussion Papers on Constitutional Economics 04/5, Walter Eucken Institut e.V..
    13. Jose M Alonso & Rhys Andrews, 2019. "Fiscal decentralisation and local government efficiency: Does relative deprivation matter?," Environment and Planning C, , vol. 37(2), pages 360-381, March.
    14. Göbel, Jürgen, 2009. "In search of an appropriate tax base for local Leviathans," MPRA Paper 13940, University Library of Munich, Germany.
    15. Hoyt, William H., 1999. "Leviathan, local government expenditures, and capitalization," Regional Science and Urban Economics, Elsevier, vol. 29(2), pages 155-171, March.
    16. Feld, Lars P, 2000. "Tax Competition and Income Redistribution: An Empirical Analysis for Switzerland," Public Choice, Springer, vol. 105(1-2), pages 125-164, October.
    17. Stephen Coate & Yanlei Ma, 2017. "Evaluating The Social Optimality Of Durable Public Good Provision Using The Housing Price Response To Public Investment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 58(1), pages 3-31, February.
    18. Boadway, Robin & Tremblay, Jean-François, 2012. "Reassessment of the Tiebout model," Journal of Public Economics, Elsevier, vol. 96(11), pages 1063-1078.
    19. Jin, Hehui & Qian, Yingyi & Weingast, Barry R., 2005. "Regional decentralization and fiscal incentives: Federalism, Chinese style," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1719-1742, September.
    20. Randall Holcombe, 1989. "The median voter model in public choice theory," Public Choice, Springer, vol. 61(2), pages 115-125, May.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:pubcho:v:46:y:1985:i:1:p:79-86. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.