Why some local governments choose not to free-ride when undergoing boundary reform: a study of two merger cases in Poland

Abstract

ABSTRACT One of the side effects of municipal territorial reforms is the common-pool problem. The problem arises when the costs of an activity that benefits a small entity are borne by a larger entity. A review of existing empirical studies suggests that although the common-pool problem has been identified in all investigated cases, it has not as yet been sufficiently analysed and understood. This article focuses on two voluntary mergers in Poland. The authors test the impact of the merger decision on the pre-merger level of capital spending and debt. The analysis is based on a quasi-experimental design using Synthetic Control method. The paper identifies factors explaining why the behaviour of the analysed merging municipalities differs from the results of earlier studies. The most important finding is that the mechanism preventing common resources hoarding is effective when local rules are applied to the merger.