Bureaucracy and the divisibility of local public output

Abstract

Recent research has analyzed the issue of whether local government services are public or private in nature. In analyzing the determinants of local government spending both Bergstrom and Goodman (1973) and Borcherding and Deacon (1972) developed variants of the median voter model which permitted estimation of 'publicness' parameters in reduced form expenditure equations. In both studies the estimated parameter indicated that municipal services are divisible in consumption, a characteristic of private goods. Subsequent studies have tended to corroborate this result (Gramlich and Rubinfeld, 1982;McMillan, et al., 1981;Pack and Pack, 1978, Pomerehne, 1978; Pommerehne and Frey, 1976; Vehorn, 1979). However, all of these studies have used the same theoretical model, varying only the data set used for empirical estimation. This paper raises some questions about the appropriateness of the median voter model for estimating the divisibility question, and proposes an alternative theoretical approach.A number of fundamental questions have been raised about the accuracy of the median voter model in describing local decisionmakers' behavior. Romer and Rosenthal (1979a; 1979b) argue that empirical studies based on the assumed dominance of the median voter have failed to prove that actual municipal expenditures correspond to those desired by the median voter. The median voter model views local government as setting expenditure levels in a competitive manner in response to the preferences of the voter with median tastes. Two candidates competing for elected office would be expected to propose the median voter's position in order to win an election. Voters are assumed to be well informed and free from fiscal illusion. The electoral process also is assumed to be free of the voting power of public employee and other special interest groups. These and other aspects of the median voter theory have prompted questioning as to whether the electoral process is capable of producing policy outcomes in line with the median * The authors would like to thank Thayer Watkins, Roger Folsom, Geoffrey Nunn and Randy Eberts for valuable comments. We would also like to thank the Earhart Foundation for financial assistance.

Municipal annexation and local monopoly power

“…When the extension of city boundaries results in an increase in population dq/dA .~ 0 as dq/dN .~ 0. We have shown elsewhere (Gonzalez and Mehay, 1985) that the relationship between per capita consumption of municipal services and population (dq/dn) depends on the publicness of the good and underlying cost conditions. Since there is considerable evidence (Bergstrom and Goodman, 1973;Borcherding and Deacon, 1972) against the only case when dq/dN < 0, we reject this possibility and conclude that all terms in (4) will be positive or zero so that d (T/N)/dA > 0.…”

A politico-economic approach to intergovernmental lump-sum grants

“…This result was initially stated in the seminal median voter papers of Borcherding and Deacon (1972) and Bergstrom and Goodman (1973) and endorsed by other authors who developed bureaucratic approaches: Gonzalez and Mehay (1985) and Wyckoff (1988). Here, population is a rough indicator of "needs".…”

Bureaucracy and the ?publicness? of local public goods

“…The use of this method, however, has almost uniformly resulted in the counterintuitive conclusion that local public goods are actually pure private goods with respect to their crowding behavior. Gonzalez and Mehay (1985), for example, note that in addition to the original two articles, at least six subsequent studies have come to this conclusion. Borcherding, Bush, and Spann (1977) have argued that bureaucracy is to blame for these results.…”

“…Under such a correlation, part of the extra spending in larger cities which is erroneously attributed to greater population by the BDBG approach is actually due to greater bureaucratic power in those larger cities. In a more recent paper, Gonzalez and Mehay (1985) have suggested that the presence of bureaucracy completely invalidates the BDBG approach, necessitating an alternative and less precise methodology to estimate the publicness of local public goods.In this paper I use a new, more exact model of bureaucratic influence to argue that bureaucracy cannot be responsible for the anomalous results found in the empirical literature. The paper demonstrates that: (1) if bureaucracies can alter the composition of spending in a community, they will push for local public goods which are close to the pure public good, rather than pure private good, extreme; and (2) if bureaucratic power is correlated with population, the estimated results will be biased toward the pure public good extreme.…”

“…Under such a correlation, part of the extra spending in larger cities which is erroneously attributed to greater population by the BDBG approach is actually due to greater bureaucratic power in those larger cities. In a more recent paper, Gonzalez and Mehay (1985) have suggested that the presence of bureaucracy completely invalidates the BDBG approach, necessitating an alternative and less precise methodology to estimate the publicness of local public goods.…”