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Why Local Governments Do Not Maximize Profits: On the Value Added by the Representative Institutions of Town and City Governance


Roger D. Congleton


West Virginia University - Department of Economics; George Mason University - Center for Study of Public Choice; George Mason University - Department of Economics

May 21, 2011

GMU Working Paper in Economics No. 11-07

Abstract:     
This paper provides an explanation for the lack of profit-maximizing governments and for widespread use of more or less representative forms of local governance based on economic, rather than political, considerations. 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.

Number of Pages in PDF File: 33

Keywords: constitutional political economy, local government, constitutional history, public choice

JEL Classification: D70, H70, N4

working papers series


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Date posted: February 19, 2011 ; Last revised: June 16, 2011

Suggested Citation

Congleton, Roger D., Why Local Governments Do Not Maximize Profits: On the Value Added by the Representative Institutions of Town and City Governance (May 21, 2011). GMU Working Paper in Economics No. 11-07. Available at SSRN: http://ssrn.com/abstract=1764266 or http://dx.doi.org/10.2139/ssrn.1764266

Contact Information

Roger D. Congleton (Contact Author)
West Virginia University - Department of Economics ( email )
PO Box 6025
Morgantown, WV 26506
United States
HOME PAGE: http://rdc1.net
George Mason University - Center for Study of Public Choice ( email )
4400 University Drive
Fairfax, VA 22030
United States
HOME PAGE: http://rdc1.net
George Mason University - Department of Economics
4400 University Drive
Fairfax, VA 22030
United States
HOME PAGE: http://rdc1.net
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