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Adam Smith or Machiavelli? Political incentives for contracting out local public services

Authors
  • Sundell, Anders1
  • Lapuente, Victor1
  • 1 University of Gothenburg, The Quality of Government Institute, Sprängkullsgatan 19, Gothenburg, 405 30, Sweden , Gothenburg (Sweden)
Type
Published Article
Journal
Public Choice
Publisher
Springer US
Publication Date
Jun 21, 2011
Volume
153
Issue
3-4
Pages
469–485
Identifiers
DOI: 10.1007/s11127-011-9803-1
Source
Springer Nature
Keywords
License
Yellow

Abstract

Why do some local governments deliver public services directly while others rely on providers from the private sector? Previous literature on local contracting out and on the privatization of state-owned enterprises have offered two competing interpretations on why center-right governments rely more on private providers. Some maintain that center-right politicians contract out more because, like Adam Smith, they believe in market competition. Others claim that center-right politicians use privatization in a Machiavellian fashion; it is used as a strategy to retain power, by ‘purchasing’ the electoral support of certain constituencies. Using a unique dataset, which includes the political attitudes of over 8,000 Swedish local politicians from 290 municipalities for a period of 10 years, this paper tests these ideological predictions together with additional political economy factors which have been overlooked in previous studies, such as the number of veto players. Results first indicate support for the Machiavellian interpretation, as contracting out increases with electoral competition. Second, irrespective of ideological concerns, municipalities with more veto players in the coalition government contract out fewer services.

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