Local public services provision and municipal capitalism

After a few considerations on the phenomenon of municipal capitalism, a trait which characterizes many local governments in Italy and Europe, the first chapter of the dissertation presents a selective survey of some important topics in regulation. The most relevant contributions on privatization, political connections and accountability are included, together with lessons on decentralization, to show how these elements can be applied in unison to deal with the issues presented in this paper. The phenomenon of municipal capitalism has been subject to many studies, but none has tried to model what this could imply for the choice of the optimal regulatory rule, nor for the vertical allocation of regulatory tasks among the various levels of government. In the second chapter a theoretical model is built. It first considers the case in which a benevolent regulator -at the central or local level- chooses the cost reimbursement rule. Then, the model is expanded in order to analyze the effects that a partisan planner has on regulation. The third chapter tries to answer to a couple of empirical questions. Which are the determinants of the choice of ownership structure for a firm providing local public services? What are the consequences of this choice on the performance of these firms? To answer these questions a unique database providing economic and financial data on 321 Italian firms born in the 2000-2008 period has been used. These data are merged with economic, political, financial and territorial data on the first municipality (for the number of shares owned) participating them. To perform the analysis and control for endogeneity, a two-stage multinomial selection model is employed, in order to identify the causal effects in the case of more than two treatments. The empirical evidence indicates that the municipality political orientation and budgetary conditions matter in the choice of ownership structure. Moreover, while for operating efficiency the computed Average Treatment Effects seem to indicate mixed ownership as a good solution, the canonical performance and employment indicators provide evidence in the opposite direction.