The Interaction between Public and Private Governments: An Empirical Analysis

Abstract

Private governments, found in planned developments and condominiums, are increasingly common methods of local service delivery. This paper provides the first empirical study of their impact on local public finance. A novel dataset of homeowners' associations allows construction of a panel of private governments in California. Panel methods test whether public expenditures respond to private government membership. Estimates indicate that local governments lower spending in response to private government activity, consistent with strategic substitution. The paper then examines various mechanisms to explain this downloading and shows that substitutability between public and private providers is key to which services are downloaded.

Keywords: homeowners' associations, private government,l ocal government, planned developments, common interest developments, condominiums

JEL Classification: R00, H11, H4, H72