An Empirical Analysis on Yardstick Competition among Local Governments and Implications for Roles of e-Government in Efficient Provision of Local Public Goods

Abstract

Abstract-In this study, we analyze the efficiency of the equilibrium of yardstick competition among decentralized local governments and investigate its empirical significance by using Japanese prefecture-level data. The model included in the paper features incomplete contracts between a principal and an agent (i.e., residents and the local government, respectively). The model states that a local government attains accountability through the voting behavior of its residents in accordance with a yardstick comparison of their own locality with their neighboring localities. We find that local governments tend to under-supply local public goods; in addition, to improve the efficiency of the yardstick equilibrium, local governments must supply local public goods after considering regional disparities regarding residents' preference conditions and other factors. E-Government is a promising means of promoting information policy of local governments. Using an e-Government evaluation and an investigation of SNS use by local government, we indicate the effectiveness and the problems of Japanese e-Government. IndexTerms-Yardstick competition, asymmetric information, policy evaluation, e-Government.