Contestable markets for state economic governance: Reducing the costs of democracy in United States states

2000 2000

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Abstract (summary)

The research asks what causes US states to make policies that decrease or increase the costs of democracy? The costs of democracy arise when a democratic government exploits an agency relationship and monopoly policymaking powers to provide distributive policy regimes that undermine economic performance.

A theory of state economic governance explains that the costs of democracy are a function of the partisan control of state governments that are providing distributive policy regimes under federalism. Elections and federalism create voice and exit rivalry, which means that electoral challengers or other states can credibly offer less costly policy regimes to induce the replacement of an incumbent government. Incumbent governments have incentives to match the least costly credible policy regime that a rival can offer, but need not offer in actuality. This is why the market for economic governance is contestable. The central proposition is that the least costly credible challenge is a function of replacement costs. As replacement costs increase incumbent governments can offer more costly distributive policy regimes without further risking replacement, but as costs decrease, incumbent governments reduce the costs of distributive policy regimes. More specifically, larger legislative majorities and unified governments increase voice costs, and exit costs increase as the number of states within a state-centric region decrease. As replacement costs increase, so do the costs of democracy.

The empirical analysis uses data from 1979–1996 in pooled cross-sectional time series models of bond ratings, effective tax rates and revenue forecasting errors, which are policy decisions that affect the costs of distributive policy regimes. The findings confirm the hypotheses that larger legislative majorities and unified governments increase the costs of democracy, but lower exit cost regions only affect the costs of democracy by mitigating the positive relationship between partisan control and the costs of democracy.

These findings demonstrate that both electoral competition and federalism are effective constraints on opportunistic state economic governance. A more general framework of analysis based upon contestable markets for economic governance is offered to explain economic performance at both the local and international level of analysis as a function of exit and voice rivalry.

Indexing (details)

Political science;
Public administration;
Business costs;
0615: Political science
0617: Public administration
0505: Business costs
Identifier / keyword
Social sciences; Contestable markets; Cost reduction; Democracy; Economic governance; Federalism
Contestable markets for state economic governance: Reducing the costs of democracy in United States states
Collins, Brian Keith
Number of pages
Publication year
Degree date
School code
DAI-A 61/11, Dissertation Abstracts International
Place of publication
Ann Arbor
Country of publication
United States
9780493009131, 0493009132
Williams, John T.
Indiana University
University location
United States -- Indiana
Source type
Dissertations & Theses
Document type
Dissertation/thesis number
ProQuest document ID
Database copyright ProQuest LLC; ProQuest does not claim copyright in the individual underlying works.
Document URL
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