Cooperation Among Local Governments to Deliver Public Services : A 'Structural' Bivariate Response Model with Fixed Effects and Endogenous Covariate

GATE Groupe d’Analyse et de Théorie Économique Lyon-­‐St Étienne Working Paper No. WP 1304

35 Pages Posted: 14 Feb 2013

See all articles by Edoardo Di Porto

Edoardo Di Porto

University of Naples Federico II - CSEF - Center for Studies in Economics and Finance

Vincent R. Merlin

Centre de Recherche en Économie et Management (CREM)

Sonia Paty

University of Angers - Institute of Economic Theory and Analysis (GATE)

Date Written: February 1, 2013

Abstract

Cooperation among local governments has been encouraged to enable the aggregation of resources and improved public sector efficiency. However, if cooperation through the joint delivery of local public services is likely to be welfare enhancing for the agglomeration, but will lead to losses for one of the parties, it is unlikely that the losing municipality will cooperate. Using a unique panel dataset of 30,000 French municipalities for 1995-2003, we estimate the relationship between cooperation decision and the fiscal revenues raised to provide local public goods. We employ a new econometric strategy based on Lee (1978), developing a non linear method controlling for fixed effect, endogenous covariates and cluster standard error. We find evidence that a positive difference between the expected fiscal revenues of a cooperating locality and the actual revenues realized by an isolated locality significantly increases the probability of joining an inter-municipal community.

Keywords: inter-municipal cooperation, fiscal revenues, bivariate response variable, panel data, endogeneity

JEL Classification: C3, H2, H4, H7

Suggested Citation

Di Porto, Edoardo and Merlin, Vincent R. and Paty, Sonia, Cooperation Among Local Governments to Deliver Public Services : A 'Structural' Bivariate Response Model with Fixed Effects and Endogenous Covariate (February 1, 2013). GATE Groupe d’Analyse et de Théorie Économique Lyon-­‐St Étienne Working Paper No. WP 1304. Available at SSRN: https://ssrn.com/abstract=2215670 or http://dx.doi.org/10.2139/ssrn.2215670

Edoardo Di Porto (Contact Author)

University of Naples Federico II - CSEF - Center for Studies in Economics and Finance ( email )

Via Cintia
Complesso Monte S. Angelo
Naples, Naples 80126
Italy

Vincent R. Merlin

Centre de Recherche en Économie et Management (CREM) ( email )

7, place Hoche
Rennes, Bretagne 35065
France

Sonia Paty

University of Angers - Institute of Economic Theory and Analysis (GATE) ( email )

93, chemin des Mouilles
Monnaie et Finance at Lyon
69130 Ecully cedex
France

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