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Corporate governance theory suggests that companies with dispersed and indirect ownership suffer from agency costs. A worst case is where several political authorities jointly own a company, which allows managers to operate with inferior efficiency. In political economy, the manager is not the major agency problem. Elected politicians may impair efficiency to improve their re-election prospects. Since politicians have less influence in jointly owned firms, such companies are expected to perform better than those owned by a single public authority. Consistent with corporate governance - but not political economy - the empirical analysis suggests that dispersed municipal ownership impairs cost efficiency. In the Norwegian case of municipal refuse collection presented here, costs of dispersed ownership often outstrip gains from economies of scale. Use of jointly owned companies is not necessarily a proper response to efficiency problems inherent a fragmented local government structure. Adapted from the source document.

Local government in Norway comprises a large number of small municipalities. Cost efficiency can be improved by consolidating local authorities, & central government has designed a framework to stimulate voluntary mergers. Existing theories suggest that political transaction costs will impede consolidations. (1) Generous grants compensate diseconomies of scale. Central government has promised small municipalities that grant levels will be maintained, but policy promises may not be credible. (2) Property rights to local revenues are nullified when consolidations have been implemented. High-revenue municipalities will therefore go against merger with a poorer neighbor. (3) A consolidated local council may be composed of different political parties, & it may therefore pursue other policies than an existing council. Expected changes in party strength can lead municipalities to oppose a proposed consolidation. (4) Senior politicians are less likely to support mergers, particularly if they come from small polities. We offer an explicit test of these propositions based on data for Norwegian local government. Elected politicians & administrative leaders are more interested in consolidating when efficiency gains are large. Local revenue disparities & to some extent dissimilar party preferences are significant impediments to voluntary mergers. Additionally, smaller municipalities are often prepared to sacrifice some efficiency gain to remain independent polities. Tables, Appendixes, References. Adapted from the source document.

The centralization of local public finance is commonly justified in terms of equality. The welfare state regulates local government & allocates grants in a way that sacrifices efficiency to achieve equality. The political economy model suggests that democratically elected national politicians may pursue policies that diverge from this. This article outlines a version of the political economy model based on seat-maximizing politicians in central & local government. Both parliamentary policy making & local government lobbying may generate disparities in grant allocation. On the basis of data on central grant distribution in Norway, we observe persistent disparities in local government revenues that cannot be accounted for by regional policy aims or egalitarian objectives. Extensive data on local governments, the lobbying activities of local council members & the Storting (the Norwegian Parliament) allows us to test the political economy hypotheses. Disparities in the number of seats allocated to the national election districts, & differences in the local lobbying activities, influence the distribution of grants between municipalities & counties. 7 Tables, 1 Figure, 30 References. Adapted from the source document.

Electoral agency models suggest that government efficiency improves when voters penalize poor performance, and party competition is balanced. Uncertainty in the electoral mechanism dilutes the incentive to produce efficiently. We test this proposition using panel data on local governments. The dataset includes a broad set of indicators on service output and quality, which facilitates the measurement of cost efficiency. We use historical data on local voting in national elections to measure partisan bias, while electoral volatility is measured on past variations in neighboring municipalities. The empirical analyses show that partisan bias lowers cost efficiency, particularly in municipalities with large electoral volatility. [Copyright Elsevier Ltd.]

The literature on intergenerational conflict and public budgets has shown that the demands of the elderly may crowd out educational spending. We extend this literature to take into account altruism within the family where individuals care about the welfare of family members. The conflicting claims to the public budget will reflect the political strength of age groups, but may also be influenced by whether middle-aged have children or elderly parents in the community. We investigate the role of family altruism using both survey data and demographic and local government budget data in Norway from 1992 to 2004. Family altruism matters for local government spending on primary education, but does not affect spending on old-age care and health services. The old must take care of their own interests themselves. [Copyright Elsevier B.V.]