Management Discretion and Political Interference in Municipal Enterprises. Evidence from Italian Utilities

32 Pages Posted: 19 May 2010 Last revised: 11 Jan 2011

See all articles by Paola Garrone

Paola Garrone

Politecnico di Milano

Luca Grilli

Polytechnic University of Milan - Department of Management, Economics and Industrial Engineering

Xavier Rousseau

McKinsey Consulting Group

Date Written: December 28, 2010

Abstract

The attention of scholars and policy makers is shifting from full privatization to accompanying policies and alternative measures as a means to improve the efficiency of public services. This paper focuses on three restructuring measures: partial privatization (without transfer of control rights), inter-municipal joint ventures, and the presence of outside directors on the Board. Divergent hypotheses on these measures have emerged according to whether political economy or the agency theory has been used. An empirical analysis investigates the effects of restructuring processes on a sample of Italian municipal utilities. Partial privatization has been shown to play a significant and positive role, while Board independence from management has a less significant influence. Multi-government utilities have been found to suffer from severe coordination costs, which are not outweighed by scale benefits. Our findings reveal that management discretion is a significant source of inefficiency in public enterprise.

Keywords: Partial privatisation, Inter-municipal initiatives, Municipal utilities, Management discretion

JEL Classification: L32,L33,L9

Suggested Citation

Garrone, Paola and Grilli, Luca and Rousseau, Xavier, Management Discretion and Political Interference in Municipal Enterprises. Evidence from Italian Utilities (December 28, 2010). Available at SSRN: https://ssrn.com/abstract=1610124 or http://dx.doi.org/10.2139/ssrn.1610124

Paola Garrone (Contact Author)

Politecnico di Milano ( email )

piazza Leonardo da Vinci 32
Milano, 20133
Italy
+39-02-23992742 (Phone)

Luca Grilli

Polytechnic University of Milan - Department of Management, Economics and Industrial Engineering ( email )

Via Lambruschini 4C - building 26/A
Milano, 20156
Italy

Xavier Rousseau

McKinsey Consulting Group ( email )

Washington, DC
United States

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