The CompNet Competitiveness Database The Competitiveness Research Network (CompNet)...
The Efficiency of Local Public-service Production: The Effect of Political Institutions
Peter Bönisch, Peter Haug
Reforms replacing municipal cooperations by centralized municipalities often aim at increasing municipal efficiency. Empirical evidence supporting this aim, however, is ambiguous. Our paper analyzes the effect of institutions on municipal efficiency. In particular, we distinguish two archetypal institutional settings, a centralized and a confederal one, and argue that bureaucrats in a centralized setting are able to increase the fiscal residual. Our empirical test case is the German federal state of Saxony-Anhalt. We test the effect of the institutional setup using the bootstrap approach suggested by Simar and Wilson (2007), concluding that a decentralized institutional setting improves the efficiency of municipal production.
Wage Bargaining Regimes and Firms‘ Adjustments to the Great Recession
Filippo di Mauro, Maddalena Ronchi
IWH-CompNet Discussion Papers,
The paper aims at investigating to what extent wage negotiation set-ups have shaped up firms’ response to the Great Recession, taking a firm-level cross-country perspective. We contribute to the literature by building a new micro-distributed database which merges data related to wage bargaining institutions (Wage Dynamic Network, WDN) with data on firm productivity and other relevant firm characteristics (CompNet). We use the database to study how firms reacted to the Great Recession in terms of variation in profits, wages, and employment. The paper shows that, in line with the theoretical predictions, centralized bargaining systems – as opposed to decentralized/firm level based ones – were accompanied by stronger downward wage rigidity, as well as cuts in employment and profits.
The Role of Information in Innovation and Competition
Ufuk Akcigit, Qingmin Liu
Journal of the European Economic Association,
Innovation is typically a trial‐and‐error process. While some research paths lead to the innovation sought, others result in dead ends. Because firms benefit from their competitors working in the wrong direction, they do not reveal their dead‐end findings. Time and resources are wasted on projects that other firms have already found to be fruitless. We offer a simple model with two firms and two research lines to study this prevalent problem. We characterize the equilibrium in a decentralized environment that necessarily entails significant efficiency losses due to wasteful dead‐end replication and an information externality that leads to an early abandonment of the risky project. We show that different types of firms follow different innovation strategies and create different kinds of welfare losses. In an extension of the core model, we also study a centralized mechanism whereby firms are incentivized to disclose their actions and share their private information in a timely manner.
College Choice Allocation Mechanisms: Structural Estimates and Counterfactuals
J.-R. Carvalho, T. Magnac, Qizhou Xiong
We evaluate a simple allocation mechanism of students to majors at college entry that was commonly used in universities in Brazil in the 1990s and 2000s. Students first chose a single major and then took exams that select them in or out of the chosen major. The literature analyzing student placement, points out that this decentralized mechanism is not stable and is not strategy-proof. This means that some pairs of major & students can be made better off and that students tend to disguise their preferences using such a mechanism. We build up a model of performance and school choices in which expectations are carefully specified and we estimate it using cross-section data reporting choices between two medical schools and grade performances at the entry exams. Given those estimates, we evaluate changes in selection and students’ expected utilities when other mechanisms are implemented. Results highlight the importance of strategic motives and redistributive effects of changes of the allocation mechanisms.
(De-)Centralization and Voter Turnout: Theory and Evidence from German Municipalities
Claus Michelsen, Peter Bönisch
A vast academic literature illustrates that voter turnout is affected by the institutional design of elections (e.g., compulsory voting, electoral system, postal or Sunday voting). In this article, we exploit a simple Downsian theoretical framework to argue that the institutional framework of public good provision – and, in particular, the distribution of political and administrative competences across government levels – likewise affects voters’ turnout decisions by influencing the expected net benefit of voting. Empirically, we exploit the institutional variation across German municipalities to test this proposition, and find supportive evidence.
Sovereign Default Risk and Decentralization: Evidence for Emerging Markets
Stefan Eichler, M. Hofmann
European Journal of Political Economy,
We study the impact of decentralization on sovereign default risk. Theory predicts that decentralization deteriorates fiscal discipline since subnational governments undertax/overspend, anticipating that, in the case of overindebtedness, the federal government will bail them out. We analyze whether investors account for this common pool problem by attaching higher sovereign yield spreads to more decentralized countries. Using panel data on up to 30 emerging markets in the period 1993–2008 we confirm this hypothesis. Higher levels of fiscal and political decentralization increase sovereign default risk. Moreover, higher levels of intergovernmental transfers and a larger number of veto players aggravate the common pool problem.
Size is not everything – The efficiency of municipal service provision in Saxony-Anhalt
Peter Haug, Annette Illy
Wirtschaft im Wandel,
The proponents of municipal area reforms – e.g. the recently completed reform in Saxony-Anhalt – expect that municipal amalgamations or centralized organizational forms save costs or increase the efficiency of local public service provision. This article examines the potential efficiency deficits of Saxony-Anhalt´s fragmented municipal structures on the eve of the crucial phase of the municipal reform. The results of a two-step DEA bootstrap procedure show that decentralized municipalities (“Verwaltungsgemeinschaften”) do not have to be significantly less efficient than centralized municipalities (“Einheitsgemeinden”). Furthermore, the results of the scale efficiency analysis suggest that the majority of Saxony-Anhalt´s communities already had an approximately efficient “firm size” – if the aggregated level of the municipal associations is examined. The relationship between scale efficiency and population is U-shaped. On the one hand, the results do not support the preservation of micro-municipalities or the formation of municipal associations with more than ten members. On the other hand, the results provide also no evidence for the necessity to reduce the number of towns and municipalities in Saxony-Anhalt from 1118 in 2004 to currently 219 – even if the looming population decline is taken into account.
Environmental Protection and the Private Provision of International Public Goods
Martin Altemeyer-Bartscher, Dirk T. G. Rübbelke, E. Sheshinski
International environmental protection like the combat of global warming exhibits properties of public goods. In the international arena, no coercive authority exists that can enforce measures to overcome free-rider incentives. Therefore decentralized negotiations between individual regions serve as an approach to pursue efficient international environmental protection. We propose a scheme which is based on the ideas of Coasean negotiations and Pigouvian taxes. The negotiating entities offer side-payments to counterparts in order to influence their taxation of polluting consumption. Side-payments, in turn, are self-financed by means of externality-correcting taxes. As we show, a Pareto-efficient outcome can be attained.
Reform of Local Municipal Structures: Centralization not only Implicates Advantages
Peter Haug, Claus Michelsen
Wirtschaft im Wandel,
The question whether centralized or decentralized municipal structures are more efficient has been discussed, not only in Germany, for a long time primarily under aspects of law and administrative sciences. In this article, we use an economic approach instead. The prevailing theories on interjurisdictional competition are not conclusive about the cost and welfare effects of centralization. Therefore, using the example of Saxony-Anhalt we investigate empirically if there are any significant differences in expenses or personnel between more centralized municipal governance forms (“Einheitsgemeinden”) or rather decentralized forms (“Verwaltungsgemeinschaften”). Our cross-section analysis for selected municipal activities reveals that both types are very similar in their cost and manning structures. Significant differences can be explained rather by different population densities than by the organizational structure. Considering these results we do not recommend a forced amalgamation of the municipalities in Saxony-Anhalt. Especially, if frustration cost or the political transaction cost, which both rise with centralization, are taken into account.