Economies of Scale in Local Government: General Government Spending
Author(s)
Lawrence Southwick
ABSTRACT
The purpose of this paper is to determine whether larger or smaller municipalities are more efficient in their levels of overhead costs. The operative measure is per capita annual costs for these services. In addition, the issue of market structure as a factor in these costs is also to be studied. It is not for the purpose of considering costs for specific services but rather the general overhead items that are required of all local governments. The method of study will be to use the cities and towns of New York State over a number of years. This will ensure that the study group is relatively homogeneous over applicable state laws as well as giving a wide variation in the population levels studied. The per capita expenditures will be regressed against population and market power variables using several equation forms. The results will be tested for significance in scale effects and market power effects. Optimal population sizes will be calculated where possible. The outline of the paper is as follows: 1) Introduction, 2) Background issues, 3) The study design, 4) Data, 5) Results, and 6) Conclusions.
The purpose of this paper is to determine whether larger or smaller municipalities are more efficient in their levels of overhead costs. The operative measure is per capita annual costs for these services. In addition, the issue of market structure as a factor in these costs is also to be studied. It is not for the purpose of considering costs for specific services but rather the general overhead items that are required of all local governments. The method of study will be to use the cities and towns of New York State over a number of years. This will ensure that the study group is relatively homogeneous over applicable state laws as well as giving a wide variation in the population levels studied. The per capita expenditures will be regressed against population and market power variables using several equation forms. The results will be tested for significance in scale effects and market power effects. Optimal population sizes will be calculated where possible. The outline of the paper is as follows: 1) Introduction, 2) Background issues, 3) The study design, 4) Data, 5) Results, and 6) Conclusions.
Cite this paper
L. Southwick, "Economies of Scale in Local Government: General Government Spending," iBusiness, Vol. 4 No. 3, 2012, pp. 265-278. doi: 10.4236/ib.2012.43034.
L. Southwick, "Economies of Scale in Local Government: General Government Spending," iBusiness, Vol. 4 No. 3, 2012, pp. 265-278. doi: 10.4236/ib.2012.43034.
References
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[40] Federal Trade Commission and US Department of Justice, “Commentary on the Horizontal Merger Guidelines,” March 2006. http://www.ftc.gov/os/2006/03/CommentaryontheHorizontalMergerGuidelinesMarch2006.pdf [41] L. Southwick Jr., “Local Government Spending and At-Large versus District Representation: Do Wards Result in More Pork?” Economics and Politics, Vol. 7, No. 2, 1997, pp. 173-203. doi:10.1111/1468-0343.00027 [42] D. C. Shoup, “Effects of Suboptimization on Urban Government Decision Making,” Proceedings of the Twenty-Ninth Annual Meeting of the American Finance Association, Detroit, 28-30 December 1970. pp. 547-564. [43] R. H. Coase, “The Problem of Social Cost,” Journal of Law and Economics, Vol. 3, No. 1, 1960, pp. 1-44. doi:10.1086/466560
[1] C. M. Tiebout, “A Pure Theory of Local Public Expenditures,” Journal of Political Economy, Vol. 64, No. 5,1960, pp. 416-424. doi:10.1086/257839 [2] D. Epple, T. Romer and H. Sieg, “Interjurisdictional Sorting and Majority Rule: An Empirical Analysis,” Econometrica, Vol. 69, No. 6, 2001, pp. 1437-1465. http://www.jstor.org/stable/2692263 [3] S. L. Percy, B. W. Hawkins and P. E. Maier, “Revisiting Tiebout: Moving Rationales and Interjurisdictional Relocation,” Publius, Vol. 25, No. 4, 1995, pp. 1-17. [4] G. Brennan and J. M. Buchanan, “Towards a Tax Constitution for Leviathan,” Journal of Public Economics, Vol. 8, No. 3, 1977, pp. 255-273. doi:10.1016/0047-2727(77)90001-9 [5] B. W. Hawkins and D. M. Ihrke, “Reexamining the Suburban Exploitation Thesis in American Metropolitan Areas,” Publius, Vol. 29, No. 3, 1999, pp. 109-121. [6] S. Staley, “Policy Fax Essay: Fatal Flaws in David Rusk’s Cities without Suburbs,” Indiana Policy Review Foundation, 5 April 1996. [7] J. E. Filer and L W. Kenny, “Voter Reaction to City-County Consolidation Referenda,” Journal of Law and Economics, Vol. 23, No. 1, 1980, pp. 179-190. doi:10.1086/466958 [8] V. Ostrom, C. M. Tiebout and R. Warren, “The Organization of Government in Metropolitan Areas: A Theoretical Inquiry,” The American Political Science Review, Vol. 55, No. 4, 1961, pp. 831-842. doi:10.2307/1952530 [9] M. A. Nelson, “Decentralization of the Subnational Public Sector: An Empirical Analysis of the Determinants of Local Government Structure in Metropolitan Areas in the US,” Southern Economic Journal, Vol. 57, No. 2, 1990, pp. 443-457. [10] S. Falcone and Z. Y. Lan, “Intergovernmental Relations and Productivity,” Public Administration Review, Vol. 57, No. 4, 1997, pp. 319-322. [11] M. Olson, “Toward a More General Theory of Governmental Structure,” The American Economic Review, Vol. 76, No. 2, 1986, pp. 120-125. [12] W. J. Lynk, “Nonprofit Hospital Mergers and the Exercise of Market Power,” Journal of Law and Economics, Vol. 38, No. 2, 1995, pp. 437-461. doi:10.1086/467338 [13] M. G. Vita and S. Sacher, “The Competitive Effects of Not-for-Profit Hospital Mergers: A Case Study,” The Journal of Industrial Economics, Vol. 49, No. 1, 2001, pp. 63-84. doi:10.1111/1467-6451.00138 [14] P. W. Abelson, “Some Benefits of Small Local Government Areas,” Publius, Vol. 11, No. 1, 1981, pp. 129-140. [15] T. J. DiLorenzo, “George Stigler and the Myth of Efficient Government,” Journal of Libertarian Studies, Vol. 16, No. 4, 2002, pp. 55-73. [16] D. D. Kneebone, “Centralization and the Size of Government in Canada,” Applied Economics, Vol. 24, No. 12, 1992, pp. 1293-1298. [17] R. E. Wagner and W. E. Weber, “Competition, Monopoly, and the Organization of Government in Metropolitan Areas,” Journal of Law and Economics, Vol. 18, No. 3, 1975, pp. 661-684. [18] L. R. Gabler, “Population Size as a Determinant of City Expenditures and Employment: Some Further Evidence,” Land Economics, Vol. 47, No. 2, 1971, pp. 130-138. doi:10.2307/3145454 [19] J. S. Zax, “Is There a Leviathan in Your Neighborhood?” The American Economic Review, Vol. 79, No. 3, 1989, pp. 560-567. [20] D. Joulfaian and M. L. Marlow, “Government Size and Decentralization: Evidence from Disaggregated Data,” Southern Economic Journal, Vol. 56, No. 4, 1990, pp. 1094-1102. doi:10.2307/1059894 [21] S. C. Deller, “Local Government Structure, Devolution, and Privatization,” Review of Agricultural Economics, Vol. 20, No. 1, 1998, pp. 135-154. doi:10.2307/1349539 [22] J. Rodden, “Reviving Leviathan: Fiscal Federalism and the Growth of Government,” International Organization, Vol. 57, No. 4, 2003, pp. 695-729. doi:10.1017/S0020818303574021 [23] J. F. Couch, B. A. King, C. H. Gossett and J. B. Parris, “Economies of Scale and the Provision of Public Goods by Municipalities,” Journal of Economics and Economic Education Research, Vol. 5, No. 3, 2004, pp. 69-79. [24] K. G. Brempong, “Economies of Scale and Municipal Police Services: The Case of Florida,” The Review of Economics and Statistics, Vol. 69, No. 2, 1987, pp. 352-356. doi:10.2307/1927244 [25] A. O. Gyapong and K. G. Brempong, “Factor Substitution, Price Elasticity of Factor Demand and Returns to Scale in Police Production: Evidence from Michigan,” Southern Economic Journal, Vol. 54, No. 4, 1988, 16 pages. [26] E. Ostrom and G. P. Whitaker, “Does Local Community Control of Police Make a Difference? Some Preliminary Findings,” American Journal of Political Science, Vol. 17, No. 1, 1973, pp. 48-76. doi:10.2307/2110474 [27] D. L. Sjoquist and M. B. Walker, “Economies of Scale in Property Tax Assessment,” National Tax Journal, Vol. 52 No. 2, 1999, pp. 207-220. [28] J. Byrnes and B. Dollery, “Do Economies of Scale Exist in Australian Local Government? A Review of the Empirical Evidence,” Working Paper Series in Economics, University of New England School of Economics, Armidale, No. 2002-2. [29] W. Hirsch, “Expenditure Implications of Metropolitan Growth and Consolidation,” Review of Economics and Statistics, Vol. 41, No. 3, 1959, pp. 232-241. doi:10.2307/1927450 [30] B. Lockwood, “Distributive Politics and the Costs of Centralization,” The Review of Economic Studies, Vol. 69, No. 2, 2002), pp. 313-337. [31] J. E. Oliver, “City Size and Civic Involvement in Metropolitan America,” The American Political Science Review, Vol. 94, No. 2, 2000, pp. 361-373. doi:10.2307/2586017 [32] P. Bardhan, “Decentralization of Governance and Development,” The Journal of Economic Perspectives, Vol. 16, No. 4, 2002, pp. 185-205. doi:10.1257/089533002320951037 [33] E. Loehman and R. Emerson, “A Simultaneous Equation Model of Local Government Expenditure Decisions,” Land Economics, Vol. 61, No. 4, 1985, pp. 419-432. [34] H. Shapiro, “Economies of Scale and Local Government Finance,” Land Economics, Vol. 39, No. 2, 1963, pp. 175-186. [35] L. Drake and R. Simper, “X-Efficiency and Scale Economies in Policing: A Comparative Study Using the Distribution Free Approach and DEA,” Applied Economics, Vol. 34, No. 15, 2002, 12 pages. [36] L. Southwick Jr., “Economies of Scale and Market Power in Policing,” Managerial and Decision Economics, Vol. 26, No. 8, 2005, pp. 461-473. doi:10.1002/mde.1230 [37] W. H. Greene, “LIMDEP, v. 8.0,” Econometric Software, Inc., Plainview, 2002. [38] E. S. Savas, “Privatization and Public-Private Partnerships,” Chatham House, New Yor, 2000, pp. 72-73. [39] Federal Trade Commission, “1992 Horizontal Merger Guidelines,” 1992. http://www.ftc.gov/bc/docs/horizmer.htm. [40] Federal Trade Commission and US Department of Justice, “Commentary on the Horizontal Merger Guidelines,” March 2006. http://www.ftc.gov/os/2006/03/CommentaryontheHorizontalMergerGuidelinesMarch2006.pdf [41] L. Southwick Jr., “Local Government Spending and At-Large versus District Representation: Do Wards Result in More Pork?” Economics and Politics, Vol. 7, No. 2, 1997, pp. 173-203. doi:10.1111/1468-0343.00027 [42] D. C. Shoup, “Effects of Suboptimization on Urban Government Decision Making,” Proceedings of the Twenty-Ninth Annual Meeting of the American Finance Association, Detroit, 28-30 December 1970. pp. 547-564. [43] R. H. Coase, “The Problem of Social Cost,” Journal of Law and Economics, Vol. 3, No. 1, 1960, pp. 1-44. doi:10.1086/466560