Why local governments do not maximize profits: on the value added by the representative institutions of town and city governance

This paper provides an explanation for the lack of profit-maximizing local governments and for the historically widespread use of more or less representative forms of town and city governance. The analytical part of the paper suggests that profit-maximizing governments suffer from a "proprietor...

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Bibliographic Details
Published in:Public choice 2011-10, Vol.149 (1/2), p.187-207
Main Author: Congleton, Roger D.
Format: Article
Language:English
Subjects:
Cities
Colonies
Community power
Councils
Economic theory
Economics
Economics and Finance
Governance
Government and politics
Investment
Investments
Investors
Liberalism
Local Government
Mayors
Mobility
Municipal governments
Political economy
Political Science
Profit maximization
Profits
Public Finance
Public policy
Regional government
Residents
Retirement communities
Rivers
State government
Studies
Taxation
Towns
U.S.A
Value added
Veto
Voting rights
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Summary:This paper provides an explanation for the lack of profit-maximizing local governments and for the historically widespread use of more or less representative forms of town and city governance. The analytical part of the paper suggests that profit-maximizing governments suffer from a "proprietor's dilemma," which can be reduced by including a representative council with veto power over new taxes. Limited but costly mobility plays a role in the analysis, as does the fact that residents often make investments in a town that are difficult to relocate once made.
ISSN:0048-5829
1573-7101
DOI:10.1007/s11127-011-9835-6