Abstract
This paper provides an explanation for the lack of profit-maximizing local governments and for the historically widespread use of more or less representative forms of town and city governance. The analytical part of the paper suggests that profit-maximizing governments suffer from a “proprietor’s dilemma,” which can be reduced by including a representative council with veto power over new taxes. Limited but costly mobility plays a role in the analysis, as does the fact that residents often make investments in a town that are difficult to relocate once made.
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Congleton, R.D. Why local governments do not maximize profits: on the value added by the representative institutions of town and city governance. Public Choice 149, 187 (2011). https://doi.org/10.1007/s11127-011-9835-6
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DOI: https://doi.org/10.1007/s11127-011-9835-6