Abstract
In this paper, we explore how the ability of bureaucrats to extract resources from their community may be limited by competition in the local market for public goods.
Specifically, we examine intergovernmental aid as a resource bureaucrats seek to control. Intergovernmental aid has been found to be more stimulative of local government expenditures than predicted by neo-classical economic theory. In this research, the ‘flypaper effect’ is used as an indicator of the ability of bureaucrats to control local resources in excess of local demand and preferences.
We empirically relate variation in the flypaper effect to the extent of competition in the local market for public goods. Competition does not consistently limit the flypaper effect. The implications of this finding for theories of competition in the local market for public goods are then discussed.
Similar content being viewed by others
References
Baumol, W.J. (1982). Contestable markets: An uprising in the theory of industry structure. American Economic Review 72: 1–15.
Breton, A., and Wintrobe, R. (1982). The logic of bureaucratic action. Cambridge: Cambridge University Press.
Bish, R. (1971). The political economy of metropolitan areas. Chicago: Markham.
Chubb, J.E. (1985). The political economy of federalism. American Political Science Review 79: 994–1015.
Conybeare, J.A.C. (1984). Bureaucracy, monopoly, and competition: A critical analysis of the budget-maximizing model of bureaucracy. American Journal of Political Science 28: 479–502.
Courant, P.N., Gramlich, E.M., and Rubinfeld, D.L. (1979). The stimulative effects of intergovernmental grants: Or why money sticks where it hits. In P. Mieszkowski and W. Oakland (Eds.), Fiscal federalism and grants-in-aid. Washington, DC: The Urban Institute.
Epple, D., and Zelenitz, A. (1981). The implications of competition among jurisdictions. Journal of Political Economy 89: 1197–1217.
Filimon, R., Romer, T., and Rosenthal, H. (1982). Asymmetric information and agenda control: The bases of monopoly power in public spending. Journal of Public Economics 17: 51–70.
Gramlich, E.M. (1977). Intergovernmental grants: A review of the empirical literature. In W.E. Oates (Ed.), The political economy of fiscal federalism, 219–240. Lexington, MA: Lexington Books.
Horowitz, A.R. (1968). A simultaneous equation approach to the problems of explaining interstate differences in state and local government expenditures. Southern Economic Journal 34: 459–476.
Inman, R.P. (1979). The fiscal performance of local governments: An interpretative review. In P. Mieszkowski and M. Straszheim (Eds.), Current issues in urban economics, 270–321. Baltimore: The Johns Hopkins University Press.
Liebert, R. (1976). Disintegration and political action. New York: Academic Press.
Mackay, R.J., and Weaver, C.L. (1978). Monopoly bureaucrats and fiscal outcomes: Deductive models and implications for reform. In G. Tullock and R. Wagner (Eds.), Policy analysis and deductive reasoning, 141–165. Lexington MA: Lexington Books.
McGuire, T., Coiner, M., and Spancake, L. (1979). Budget maximizing agencies and efficiency in government. Public Choice 34: 333–359.
Mique, J.L., and Belanger, G. (1974). Toward a general theory of managerial discretion. Public Choice 17: 24–47.
Miller, G., and Moe, T. (1983). Bureaucrats, legislators, and the size of government. American Political Science Review 77: 297–322.
Niskanen, W.A. (1971). Bureaucracy and representative government. Chicago: Aldine.
Oates, W.E. (1979). Lum-sum intergovernmental grants have price effects. In P. Mieszkowski and W.H. Oakland (Eds.), Fiscal federalism and grants-in-aid, 23–30. Washington, DC: The Urban Institute.
O'Brien, T. (1971). Grants-in-aid: Some further answers. National Tax Journal 24: 65–77.
Ostrom, E. (1972). Metropolitan reform: Propositions derived from two traditions. Social Science Quarterly 53: 474–493.
Ostrom, E. (1981). Modeling bureaucratic incentives in a local public economy. The Edmund Janes James Lecture. Urbana: Department of Political Science, University of Illinois.
Ostrom, V., Tiebout, C.M., and Warren, R. (1961). The organization of government in metropolitan areas: A theoretical inquiry. American Political Science Review 55: 831–842.
Pack, H., and Pack, J.R. (1978). Metropolitan fragmentation and local public expenditures. National Tax Journal 31: 349–361.
Peterson, P. (1981). City limits. New Haven: Yale University Press.
Romer, T., and Rosenthal, H. (1982). Median voters or budget maximizers: Evidence from school expenditure referenda. Economic Inquiry 20: 556–578.
Savas, E.S. (1982). Privatizing the public sector. Chatham, NJ: Chatham House.
Schneider, M. (1980). Resource reallocation and the fiscal condition of metropolitan communities. Social Science Quarterly 61: 545–566.
Schneider, M., and Logan, J. (1982). The effects of local government finances on community growth rates: A test of the Tiebout model. Urban Affairs Quarterly 18: 91–106.
Sharpe, L.J., and Newton, K. (1984). Does politics matter? The determinants of public policy. New York: Oxford University Press.
Tiebout, C. (1956). A pure theory of local expenditures. Journal of Political Economy 64: 416–424.
Author information
Authors and Affiliations
Additional information
The research reported in this paper was supported by grants from the National Institute of Child Health and Human Development (grant number: 5R01HD1727203) and the National Science Foundation (grant number: SES8508473). Charles Cameron provided valuable comments.
Rights and permissions
About this article
Cite this article
Schneider, M., Ji, B.M. The flypaper effect and competition in the local market for public goods. Public Choice 54, 27–39 (1987). https://doi.org/10.1007/BF00123803
Issue Date:
DOI: https://doi.org/10.1007/BF00123803