Common pool problems in voluntary municipal mergers
Saarimaa, Tuukka; Tukiainen, Janne (2015)
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We analyze free-riding behavior of Finnish municipalities prior to voluntary municipal mergers. The merger process creates a temporary common pool problem, because of a delay from the initial decision to the actual merger during which municipalities stay autonomous. Using a difference-in-differences strategy, we find that the stronger free-riding incentive a municipality faced the more it increased its debt and spent its cash reserves. These funds were spent mostly on investments and current expenditures.
Common pool, Difference-in-differences, Law of 1/n, Municipality mergers, D72, H72, H74