The expenditure effects of restricting competition in local public service industries: The case of special districts

Thomas Dilorenzo

Public Choice, 1981, vol. 37, issue 3, 569-578

Abstract: The purpose of this paper has been to extend the type of positive economic analysis of the urban public economy that has been initiated by Wagner and Martin (1978), Wagner and Weber (1975), Ostrom et al. (1976), and others. The hypothesis was tested that restricting the growth of single-purpose special districts renders local service industries more monopolistic and should therefore increase local public expenditure levels. Evidence brought forth indicates that the effect of such restrictions imposed in two states, California and Oregon, was to increase general per capita expenditures, ceteris paribus. Per capita expenditures on water supply and fire protection, two services frequently provided by special districts, were also seen to increase dramatically after controlling for other supply and demand determinants of local public expenditures. Thus the empirical test of the last section supports the monopoly-enhancing view of special district growth restrictions and leads us to reject the alternative reformist hypothesis that consolidating or annexing special districts will lead to improved hierarchical organization of local government and diminish the cost of providing local public services. As the economics of regulation would predict, regulating the growth of special districts is a way that local politicians and bureaucrats can use the powers of the state to limit entry into the local government industry, thereby enhancing their monopoly power. Copyright Martinus Nijhoff Publishers 1981

Date: 1981
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DOI: 10.1007/BF00133753

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