Biased Competition, Popularity Shocks, and Government Inefficiency

17 Pages Posted: 9 Jun 2011

See all articles by Leif Helland

Leif Helland

BI Norwegian Business School - Department of Economics

Rune J. Sørensen

BI Norwegian Business School

Date Written: June 9, 2011

Abstract

We present an electoral agency model that, in a stylized way, captures the public finance structure of Norwegian municipal governments. It drives the following main implication: increasing partisan bias in favor of the incumbent reduces efficiency in public production, and more so the higher the variation of random popularity shocks in voting. This implication is tested on panel-data regressions for the period 2001-2009, including more than 400 Norwegian local governments per year. Local governments are insitutionally similar, and produce welfare services subject to a fixed amount of revenue. Utilizing exogenous sources of variation to construct our measures of random shocks and partisan bias, we find strong statistical support for the model implication. Furthermore the effects of electoral agency on efficiency are both plausible and sizable in economic terms.

Keywords: Electoral agency, local government

JEL Classification: D72, H72

Suggested Citation

Helland, Leif and Sørensen, Rune J., Biased Competition, Popularity Shocks, and Government Inefficiency (June 9, 2011). Available at SSRN: https://ssrn.com/abstract=1860802 or http://dx.doi.org/10.2139/ssrn.1860802

Leif Helland (Contact Author)

BI Norwegian Business School - Department of Economics ( email )

Nydalsveien 37
Oslo, 0484
Norway

Rune J. Sørensen

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

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