Local Government and Supervised Spatial Multiplant Monopoly

Abstract

Our first task is to explain the title of this paper. We use the term spatial multiplant (SSMM) to indicate one of three possible relations between the local government and the firm or public enterprise. First, a private multiplant firm may be the object of local government supervision, e.g., a local public utility. Second, government may privatize provision of the good by contracting with a local multiplant firm to produce and sell goods under specific terms. Third, the multiplant producer may be a public enterprise which charges a fee for its services and may also receive a subsidy which allows it to operate at a loss. The supervised spatial multiplant monopolist produces a good characterized by significant transportation costs, rivalry, and exclusion. The empirical literature, ranging from Bergstrom and Goodman [2] through Edwards [4] suggests that many goods and services currently characterized as local public goods fit this description although they are financed by taxes in many communities. For example, refuse collection and recycling, local bus service, electricity distribution, local telephone service, natural gas distribution, licensing and inspection services (automobile inspection), water and sewer service, cable television, and recreation facilities (golf, tennis, swimming) are provided by an SSMM in many communities.' Movements to privatize or to finance using user charges are increasing the number of instances of SSMM. This paper demonstrates that the economic issues associated with supervised multiplant spatial monopoly are substantially different than those which have been noted for conventional local public goods having trivial transportation costs and characterized by non-exclusion and/or non-rivalry. Because transportation costs are significant, otherwise identical households within a homogenous Tiebout [11] community are made effectively heterogenous in economic space. We for-