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Local privatization, intermunicipal cooperation,transaction costs and political interests: Evidence from Spain

Xavier Fageda and Germà Bel ()

No 200804, IREA Working Papers from University of Barcelona, Research Institute of Applied Economics

Abstract: Several empirical studies have analyzed the factors that influence local privatization. Variables related to fiscal stress, cost reduction, political processes and ideological attitudes are the most common explanatory variables used in these studies. In this paper, we add to this literature by examining the influence of transaction costs and political factors on local governments’ choices through new variables. In addition to this, we consider the role of additional aspects, such as intermunicipal cooperation as a potential alternative to privatization in order to exploit scale economies or scope economies. We consider two relevant services: solid waste collection and water distribution. Results from our estimates show that privatization (that is, contracting out to a private firm) is less common for water distribution than for solid waste collection. Higher transaction costs in water distribution are consistent with this finding. Furthermore, we find that municipalities with a conservative ruling party privatize more often regardless of the ideological orientation of the constituency. This shows that those political interests able to influence local elections are more important in determining the form of delivery than is the basic ideological stance of the constituency. Finally, we find that intermunicipal cooperation is an alternative to local privatization.

Keywords: Privatization; contracting-out; local governments (search for similar items in EconPapers)
JEL-codes: L33 R51 H72 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-geo, nep-pbe, nep-pol and nep-ure
Date: 2008-04, Revised 2008-04
References: View references in EconPapers View complete reference list from CitEc
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Persistent link: https://EconPapers.repec.org/RePEc:ira:wpaper:200804

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