Essays on optimal jurisdictional size for local service delivery
Gomez Reino, Juan Luis
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This dissertation contributes to the definition of an analytical framework for the study of optimal jurisdictional size for local service delivery. We argue that the standard economics framework for the analysis of optimal jurisdictional size importantly neglects individual preferences for political accountability. Our theoretical model shows that once we take into account such preferences, the optimal jurisdictional size for the provision of local public goods is smaller than in the standard model. We obtain empirical evidence to support our hypothesis from a sample of 197 countries. Our results show that, in fact, demand for political accountability leads to higher jurisdictional fragmentation both in terms of greater number of jurisdictions and smaller average population per jurisdiction. In addition, a meta-analysis of the empirical contributions to the study of economies of scale in the provision of local services shows that the economies of scale expected from service provision to larger jurisdictional sizes may not be present except for a handful of local services, and limited to relatively small population sizes. The results of the meta-analysis signal moderately increasing to constant returns to scale in the provision of traditional local services. In light of these results, we argue that forced jurisdictional consolidation programs across the world justified by perceptions of excessive jurisdictional fragmentation, or by the expectation of large expenditure savings due to economies of scale may have been, thus, erroneously designed. From a policy perspective, multi-layered institutional frameworks for service delivery (including cooperation and privatization among other options) may allow targeting available efficiency gains more efficiently than consolidation.