Governance of Vertical and Horizontal Fiscal Relations. Three Essays on Intermunicipal Cooperation and Public Sector Incentives

This dissertation makes three contributions on local governance issues and public sector reforms. First, it explores a trade-off in the incentive effects induced by competitive funding schemes such as performance-budgeting or conditional grants. Using a game theoretical model, it is shown how efficiency enhancing effects and wasteful window-dressing incentives affect social welfare. The model derives important normative conclusions for the design of such funding schemes and discusses the advantages and drawbacks of different performance measures. Two empirical studies address the determinants and efficiency effects of intermunicipal cooperation among Hessian municipalities. Using survey data from Hessian municipalities, the author assesses how different municipal characteristics affect the occurrence of intermunicipal cooperation in labor-intensive administration services. The study places an emphasis on neighborhood specific factors. Using data from the municipal wastewater sector, the third study investigates efficiency effects of intermunicipal cooperation. The results from a nonparametric approach of efficiency analysis reveal that especially small municipalities may benefit from cooperation whereas medium-sized municipalities operate at efficient scale. It is likely, that X-inefficiencies and transaction costs outweigh cooperation gains from scale.