Abstract
This paper explores the link between voters’ information, corruption, and efficiency in the context of a career concern model, where politically connected local monopolies are in charge of the provision of a local public service. We find that both a corrupt environment and a low level of voters’ information on managerial actions induce managers to reduce effort levels, thereby contributing to drive down efficiency. We test our predictions using data on solid waste management services provided by a large sample of Italian municipalities. We estimate a stochastic cost frontier model that provides robust evidence that services produced in more corrupted regions with low voters’ information are substantially less cost-efficient.
Highlights
In Western countries, many local public services, including water provision, gas distribution, and waste collection and disposal, are managed as local monopolies
Output parameters βD and βR indicate that a 1% increase in municipal solid waste (MSW) disposed or MSW sent to recycling results, ceteris paribus, in a 0.721 to 0.750% or 0.198 to 0.221% increase in costs, respectively
For more details concerning the technological features of MSW services see [43], which focuses on the impact of different recycling shares on refusal collection costs, and provides a complete analysis of scale and scope economies
Summary
In Western countries, many local public services, including water provision, gas distribution, and waste collection and disposal, are managed as local monopolies They are typically operated by firms with tight political connections, if not directly by the local government (in-house provision), usually under soft budget constraints. Markets with an extensive degree of interaction between politicians and firms tend to be associated to higher levels of corruption and patronage [2]. This is empirically documented by Menozzi et al [3], in their analysis of the effects of political connections on utilities’ performances
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