From Reluctant Privatization to Municipal Capitalism: an Overview on Ownership, Political Connections and Decentralization

Boggio, Margherita (2011): From Reluctant Privatization to Municipal Capitalism: an Overview on Ownership, Political Connections and Decentralization.

Abstract

Starting from a few considerations on the phenomenon of municipal capitalism, a trait which characterizes many local governments in Italy and Europe, this paper presents a selective survey of some important topics in regulation. The most relevant contributions on privatization, political connections and accountability are included, together with lessons on decentralization, to show how these elements can be applied in unison to deal with the issues presented in this paper.

• Item Type: MPRA Paper
• Language: English
• Keywords: regulation, decentralization, reluctant privatization, municipal capitalism.
• Subjects: D - Microeconomics > D7 - Analysis of Collective Decision-Making > D72 - Political Processes: Rent-Seeking, Lobbying, Elections, Legislatures, and Voting Behavior; H - Public Economics > H4 - Publicly Provided Goods > H41 - Public Goods; H - Public Economics > H7 - State and Local Government ; Intergovernmental Relations > H70 - General; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L20 - General

References

Alesina, A., I. Angeloni, and F. Etro, (2001). ‘Institutional Rules for Federations’. NBER Working Papers n. 8646.

Alesina, A., and E. Spolaore, (2003). The Size of Nations. Cambridge, Mass. London: The MIT Press.

Alesina, A., E. Spolaore, and R. Wacziarg, (2000). ‘Economic Integration and Political Disintegration’. American Economic Review, 90(5):1276–1296.

Alesina, A., and G. Tabellini, (2007). ‘Bureaucrats or Politicians? Part I: A Single Policy Task’. American Economic Review, 97(1):169–179.

Armstrong, M., and D. E. M. Sappington, (2007). ‘Recent Developments in the Theory of Regulation’. In Handbook of Industrial Organization, volume III, pp. 1557–1700, Elsevier.

Armstrong, M., and J. Vickers, (2000). ‘Multiproduct Price Regulation under Asymmetric Information’. Journal of Industrial Economics, 48(2):137–60.

Arrow, K., (1972). ‘The Organisation of Economic Activity: Issues Pertinent to the Choice of Market Versus Non-Market Allocation’. In Joint Economic Committee, The Analysis and Evaluation of Public Expeditures: The PPB System, volume I. Washintgton, DC: U.S. GPO.

Bardhan, P., and D. Mookherjee, (2000). ‘Capture and Governance at Local and National Levels’. American Economic Review, 90(2):135–139.

Bardhan, P., and D. Mookherjee, (2005). ‘Decentralization, Corruption And Government Accountability: An Overview’. Working Papers Series 23, Boston University - Department of Economics.

Bardhan, P., and D. Mookherjee, (2006). ‘Decentralisation and Accountability in Infrastructure Delivery in Developing Countries’. Economic Journal, 116(508):101–127.

Baron, D. P., and R. B. Myerson, (1982). ‘Regulating a Monopolist with Unknown Costs’. Econometrica, 50:911–930.

Barucci, E., and F. Pierobon, (2007). Le Privatizzazioni in Italia. Carocci.

Beato, P., and J. J. Laffont, (2002). Editors’ introduction. In Beato and Laffont, editors, Competition Policy in Regulated Industries. Approaches for Emerging Economies. Interamerican Development Bank.

Becker, G. S., (1983). ‘A Theory of Competition among Pressure Groups for Political Influence’. The Quarterly Journal of Economics, 98(3):371–400.

Besley, T., and S. Coate, (2003a). ‘Centralized versus Decentralized Provision of Local Public Goods: a Political Economy Approach’. Journal of Public Economics, 87(12):2611–2637.

Besley, T., and S. Coate, (2003b). ‘Elected versus Appointed Regulators: Theory and Evidence’. Journal of the European Economic Association, 1(5):1176–1206.

Biais, B., and E. Perotti, (2002). ‘Machiavellian Privatization’. American Economic Review, 92(1):240–258.

Bianchi, P., B. Bortolotti, L. Pellizzola, and C. Scarpa, (2009). Comuni S.p.A - Il capitalismo municipale in Italia. Il Mulino.

Black, F., (1976). ‘The Dividend Puzzle’. Journal of Portfolio Management, 2:1–22.

Blanchard, O., and A. Shleifer, (2000). ‘Federalism with or without Polical Centralization, China versus Russia’. MIT Working Paper, 1-15.

Bordignon, M., and S. Brusco, (2006). ‘On Enhanced Cooperation’. Journal of Public Economics, 90(10-11):2063–2090.

Bordignon, M., L. Colombo, and U. Galmarini, (2008). ‘Fiscal Federalism and Lobbying’. Journal of Public Economics, 92(12):2288–2301.

Bordignon, M., P. Manasse, and G. Tabellini, (2001). ‘Optimal Regional Redistribution under Asymmetric Information’. American Economic Review, 91(3):709–723.

Bortolotti, B., and M. Faccio, (2004). ‘Government Control of Privatized Firms’. FEEM Working Papers, no. 130.

Bortolotti, B., and M. Faccio, (2008). `Government Control of Privatized Firms', Review of Financial Studies, 1:1-33.

Bortolotti, B., M. Fantini, and D. Siniscalco, (2003). ‘Privatisation around the World: Evidence from Panel Data’. Journal of Public Economics, 88:305–332.

Bortolotti, B., and V. Milella, (2006). `Privatization in Western Europe Stylized Facts, Outcomes, and Open Issues', Working Papers 2006.124, Fondazione Eni Enrico Mattei.

Bortolotti, B., and P. Pinotti, (2008). ‘Delayed Privatization’. Public Choice, 136(3):331–351.

Bös, D., (1992). Privatization: a Theoretical Treatment. Oxford: Clarendon Press.

Boubakri, N., J. Cosset, and O. Guedhami, (2005). ‘Post-Privatization Corporate Governance: the Role of Ownership Structure in Investor Protection’. Journal of Financial Economics, 76(2):369–399.

Boubakri, N., J. Cosset, and O. Guedhami, (2009). ‘From State to Private Ownership: Issues from Strategic Industries'. Journal of Banking and Finance, 33(2):367–379.

Boubakri, N., J. Cosset, and W. Saffar, (2008). ‘Political Connections of Newly Privatized Firms’. Journal of Corporate Finance, 14(5):654–673.

Boycko, M., A. Shleifer, and R. W. Vishny, (1996). ‘A Theory of Privatisation’. Economic Journal, 106(435):309–19.

Branco, F., and A. Mello, (1991). ‘A Theory of Partial Sales and Underpricing in Privatization’. MIT Working Paper.

Brennan, B., and J. Buchanan, (1980). ‘Open Economy, Federalism and Taxing Authority’. In The power to tax: Analytical Foundations of a Fiscal Constitution. Cambridge University Press, pp. 168–186.

Cai, H., and D. Treisman, (2004). ‘State Corroding Federalism’. Journal of Public Economics, 88:819–843.

Caillaud, B., B. Jullien, and P. Picard, (1996). ‘National vs European Incentive Policies: Bargaining, Information and Coordination’. European Economic Review, 40(1):91–111.

CEEP, (2010). Mapping the Public Services. Technical report.

Che, Y., (1995). ‘Revolving Doors and the Optimal Tolerance for Agency Collusion’. RAND Journal of Economics, 26(3):378–397.

Coate, S., and S. Morris, (1995). ‘On the Form of Transfers in Special Interests’. Journal of Political Economy, 103(6):1210–1235.

Davis, F., O. Rossowski, T. Richardson, and S. Barnett, (2000). ‘Fiscal and Macroeconomic Impact of Privatization’. IMF Occasional Paper n. 194.

Dixit, A. K., G. Grossman, and E. Helpman, (1997). ‘Common Agency and Coordination: General Theory and Application to Tax Policy’. CEPR Discussion Papers n.1436.

Dixit, A. K., and J. Londregan, (1994). ‘Redistributive Politics and Economic Efficiency’. CEPR Discussion Papers n.1056.

Easterbrook, F. H., (1983). ‘Antitrust and the Economics of Federalism’. Journal of Law & Economics, 26(1):23–50.

Estache, A., (2004). ‘Emerging Infrastructure Policy Issues in Developing Countries - a Survey of the Recent Economic Literature’. The World Bank Policy Research Working Paper Series n.3442.

Evans, J., P. Levine, and F. Trillas, (2008). ‘Lobbies, Delegation and the Under-investment Problem in Regulation’. International Journal of Industrial Organization, 26:17–40.

Faccio, M., (2006). ‘Politically Connected Firms’. American Economic Review, 96(1):369–386.

Faccio, M., L. H. P. Lang, and L. Young, (2001). ‘Dividends and Expropriation’. American Economic Review, 91(1):54–78.

Freixas, X., R. Guesnerie, and J. Tirole, (1985). `Planning under Incomplete Information and the Ratchet Effect', Review of Economic Studies, 52(2):173-191.

Faulhaber, G. R., (2003). Lobby, Voting, and the Political Economy of Price Regulation. Unpublished.

Fisman, R., and R. Gatti, (2002). ‘Decentralization and Corruption: Evidence across Countries’. Journal of Public Economics, 83:325–345.

Gilbert, R. J., and D. M. Newbery, (1994). ‘The Dynamic Efficiency of Regulatory Constitutions’. RAND Journal of Economics, 25(4):538–554.

Goldstein, A., (2003). ‘Privatization in Italy 1993-2002: Goals, Institutions, Outcomes, and Outstanding Issues’. CESifo Working Paper Series n. 912.

Gomes, A., (2000). ‘Going Public without Governance: Managerial Reputation Effects’. Journal of Finance, 55(2):615–646.

Grossman, G. M., and E. Helpman, (1994). ‘Protection for Sale’. American Economic Review, 84(4):833–850.

Grossman, G. M., and E. Helpman, (1996). ‘Electoral Competition and Special Interest Politics’. Review of Economic Studies, 63(2):265–86.

Grossman, G. M., and E. Helpman, (2002). Special Interest Politics, volume 1. The MIT Press.

Grossman, S. J., and O. D. Hart, (1986). ‘The Costs and Benefits of Ownership: a Theory of Vertical and Lateral Integration’. The Journal of Political Economy, 94(4):691–719.

Guerriero, C., (2008). ‘The Political Economy of Incentive Regulation: Theory and Evidence from U.S. States’. FEEM Working Papers, no. 34.

Hart, O. D., A. Shleifer, and R. W. Vishny, (1996). ‘The Proper Scope of Government: Theory and an Application to Prisons’. NBER Working Papers n. 5744.

Helpman, E., and T. Persson, (1998). ‘Lobbying and Legislative Bargaining’. NBER Working Papers n.6589.

Inman, R. P., and D. L. Rubinfeld, (1997). ‘Rethinking Federalism’. Journal of Economic Perspectives, 11(4):43–64.

Jensen, M. C., (1986). ‘Agency Cost of Free Cash Flow, Corporate Finance and Takeovers’. American Economic Review, 76(2):323–329.

Jensen, M. C., and W. H. Meckling, (1976). ‘Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure’. Journal of Financial Economics, 3:305–360.

Jones, S. L., W. L. Megginson, R. C. Nash, and J. M. Netter, (1999). ‘Share Issue Privatizations as Financial Means to Political and Economic Ends’. Journal of Financial Economics, 53(2):217–253.

Kornai, J., (1986). The soft budget constraint. Kyklos, 39(1):3–30.

Kornai, J., (1992). The Socialist System: the Political Economy of Communism. Clarendon Press, Oxford.

Kornai, J., E. Maskin, and G. Roland, (2003). ‘Understanding the Soft Budget Constraint’. Journal of Economic Literature, 41(4):1095–1136.

La Porta, R., F. Lopez-De-Silanes, A. Shleifer, and R. W. Vishny, (2000). ‘Agency Problems and Dividend Policies around the World’. Journal of Finance, 55(1):1–33.

La Porta, R., and F. Lopez-De-Silanes, (1999). ‘The Benefits Of Privatization: Evidence From Mexico’. The Quarterly Journal of Economics, 114(4):1193–1242.

La Porta, R., F. Lopez-De-Silanes, and A. Shleifer, (1999). ‘Corporate Ownership Around the World’. Journal of Finance, 54(2):471–517.

La Porta, R., F. Lopez-De-Silanes, and A. Shleifer, (2002). ‘Government Ownership of Banks’. Journal of Finance, 57(1):265–301.

Laffont, J. J., (1996). ‘Industrial Policy and Politics’. International Journal of Industrial Organization, 14(1):1–27.

Laffont, J. J., (2000). Incentives and Political Economy. Oxford: Clarendon Press.

Laffont, J. J., and J. Pouyet, (2004). ‘The Subsidiarity Bias in Regulation’. Journal of Public Economics, 88(1):255–283.

Laffont, J. J., and J. Tirole, (1986). ‘Using Cost Observation to Regulate Firms’. Journal of Political Economy, 94:614–641.

Laffont, J. J., and J. Tirole, (1993). A Theory of Incentives in Procurement and Regulation. Cambridge, Mass. London: The MIT Press.

Laffont, J. J., and J. Tirole, (1991). ‘Privatization and Incentives’. Journal of Law, Economics & Organization, 7, Special Issue: [Papers from the Conference on the New Science of Organization].

Leland, H. E., and D. H. Pyle, (1977). ‘Informational Asymmetries, Financial Structure, and Financial Intermediation’. Journal of Finance, 32(2):371–87.

Lewis, T. R., and D. E. M. Sappington, (1990). ‘Sequential Regulatory Oversight’. Journal of Regulatory Economics, 2(4):327–48.

Lockwood, B., (2002). ‘Distributive Politics and the Costs of Centralization’. Review of Economic Studies, 69:313–337.

Lülfesmann, C., (2007). ‘On the Virtues of Privatization when Government is Benevolent’. Journal of Economic Behavior & Organization, 64(1):17–34.

Marshaw, J. L., and S. Rose-Ackermann, (1984). ‘Federalism and Regulation’. In The Reagan Regulatory Strategy. The Urban Institute Press.

Martimort, D., (2006). ‘An Agency Perspective on the Costs and Benefits of Privatization’. Journal of Regulatory Economics, 30(1):5–44.

Martimort, D., and S. Straub, (2009). ‘Infrastructure Privatization and Changes in Corruption Patterns: The Roots of Public Discontent’. Journal of Development Economics, 90(1):69–84.

Megginson, W., and J. M. Netter, (2001). ‘From State to Market: A Survey of Empirical Studies on Privatization’. Journal of Economic Literature, 39:321–389.

Mu, H., (2009). Politics, Regulation and Investment in the Telecommunications Industry. Unpublished.

Musgrave, R., (1959). Theory of Public Finance. Tokio, Mac-Graw Hill.

Oates, W. E., (1972). Fiscal Federalism. Harcourt Brace Jovanovich, Inc., New York.

Peltzman, S., (1976). ‘Toward a More General Theory of Regulation’. Journal of Law & Economics, 19(2):211–40.

Perotti, E., (1995). ‘Credible Privatization’. American Economic Review, 85(4):847–859.

Perotti, E., and P. Van Oijen, (2001). ‘Privatization, Political Risk and Stock Market Development in Emerging Economies’. Journal of International Money and Finance, 20(1):43–69.

Persson, T., and G. Tabellini, (1996). ‘Federal Fiscal Constitutions: Risk Sharing and Moral Hazard’. Econometrica, 64(3):623–646.

Qian, Y., and G. Roland, (1998). ‘Federalism and the Soft Budget Constraint’. American Economic Review, 88(5):1143–1162.

Qian, Y., and B. R. Weingast, (1997). ‘Federalism as a Commitment to Preserving Market Incentives’. Journal of Economic Perspectives, 11(4):83–92.

Robinson, J., and R. Torvik, (2006). ‘A Political Economy Theory of the Soft Budget Constraint’. NBER Working Papers n.12133.

Rodden, J., and E. Wibels, (2002). ‘Beyond the Fiction of Federalism - Macroeconomic Management in Multitiered Systems’. World Politics, 54:494–531.

Rogoff, K., (1985). ‘The Optimal Degree of Commitment to an Intermediate Monetary Target’. The Quarterly Journal of Economics, 100(4):1169–89.

Rose-Ackermann, S., (1999). ‘Political Corruption and Democracy’. Connecticut Journal of International Law, 14:362–378.

Samuelson, P. A., (1954). ‘The Pure Theory of Public Expenditure’. Review of Economics and Statistics, 36:387–389.

Sappington, D. E. M., (1983). ‘Limited Liability Contracts between Principal and Agent’. Journal of Economic Theory, 29(1):1–21.

Sappington, D. E. M., and J. E. Stiglitz, (1987). ‘Privatization, Information and Incentives’. Journal of Policy Analysis and Management, 6:567–582.

Schmidt, K. M., (1996). ‘The Costs and Benefits of Privatization: An Incomplete Contracts Approach’. Journal of Law, Economics & Organization, 12(1):1–24.

Seabright, P., (1996). ‘Accountability and Decentralization in Government: an Incomplete Contracts Model’. European Economic Review, 40:61–89.

Shapiro, C., and R. D. Willig, (1990). ‘On the Antitrust Treatment of Production Joint Ventures’. Journal of Economic Perspectives, 4(3):113–30.

Shleifer, A., (1998). ‘State versus Private Ownership’. Journal of Economic Perspectives, 12(4):133–150.

Shleifer, A., and R. W. Vishny, (1994). ‘Politicians and Firms’. The Quarterly Journal of Economics, 109(4):995–1025.

Sonin, K., (2010). ‘Provincial Protectionism’. Journal of Comparative Economics, 38(2):111–122.

Spector, D., (2007). State Aids: Economic Analysis and Practice in the EU. In IESE Conference on the 50th Anniversary of the Treaty of Rome.

Spiegel, Y., (1994). The Capital Structure and Investment of Regulated Firms under Alternative Regulatory Regimes’. Journal of Regularory Economics, 6(3):297–320.

Spiegel, Y., and D. F. Spulber, (1994). ‘The Capital Structure of Regulated Firms’. RAND Journal of Economics, 25(3):424–440.

Spiegel, Y., and D. F. Spulber, (1997). ‘Capital Structure with Countervailing Incentives’. RAND Journal of Economics, 28(1):1–24.

Stalon, C. G., and R. H. J. H. Lock, (1990). `State-Federal Relations in the Economic Regulation of Energy’. Yale Journal of Regulation, 7:427–497.

Stigler, G. J., (1971). ‘The Theory of Economic Regulation’. Bell Journal of Economics, 2(1):3–21.

Tiebout, C., (1956). ‘A Pure Theory of Local Expenditures’. Journal of Political Economy, 64:416–424.

Tirole, J., (1986). `Hierarchies and Bureaucracies: On the Role of Collusion in Organizations'. Journal of Law, Economics and Organization, 2(2):181-214.

Tommasi, M., and F. Weinschelbaum, (2007). ‘Centralization vs. Decentralization: A Principal-Agent Analysis’. Journal of Public Economic Theory, 9(2):369–389.

Treisman, D., (2002). ‘Decentralization and the Quality of Government’. UCLA Working Paper.

Treisman, D., (2007). The Architecture of Government. Rethinking Political Decentralization. Cambridge University Press.

Trillas, F., (2010). ‘Electricity and Telecoms Reforms in the EU: Insights from the Economics of Federalism’. Utilities Policy, 18(2).

Troesken, W., (1996). Why Regulate Utilities? The New Institutional Economics and the Chicago Gas Industry. The University of Michigan Press.

Vickers, J., and G. Yarrow, (1988). Privatization: An Economic Analysis, volume 1. The MIT Press.

Vickers, J., and G. Yarrow, (1991). ‘Economics Perspectives on Privatization’. Journal of Economic Perspectives, 5(2):111–132.

Waller, C. J., T. Verdier, and R. Gardner, (2002). ‘Corruption: Top Down or Bottom Up? ’. Economic Inquiry, 40(4):688–703.

Weingast, B. R., (1995). ‘The Economic Role of Political Institutions: Market-Preserving Federalism and Economic Development’. Journal of Law and Economic Organization, 11:1–31.

Weiser, P. J., (1998). ‘Federal Common Law, Cooperative Federalism, and the Enforcement of the Telecom Act’. New York University Law Review, 76:1692–1767.

Weitzman, M. L., (1980). ‘The “Ratchet Principle” and Performance Incentives’. Bell Journal of Economics, 11(1):302–308.

Williamson, O., (1985). The Economic Institutions of Capitalism. Free Press.

Woroch, G., (1990). Are Two Regulators Better than One? Economics of Dual Regulation in Telecommunications. Mimeo.