Rational Choice and Regional Governance

This article presents a “second-generation” rational choice explanation for voluntary regional governance. It identifies the interests that motivate interlocal collaboration and argues that voluntary agreements emerge from a dynamic political contracting process in which benefits exceed the transaction costs of bargaining an agreement. Explanations are presented for how specific community characteristics and formal and informal institutional arrangements reduce transaction costs of information/coordination, negotiation, enforcement, and agency. Based on the logic of this framework, sets of propositions are presented regarding how these contextual factors influence the transaction costs of cooperative actions. Evidence supporting these propositions is reviewed, followed by a discussion of implications of this second-generation rational choice theory for the study and practice of regional governance. To what extent can voluntary cooperation and coordination among local governments provide solutions to regional problems confronting metropolitan areas? Debate between advocates of centralized versus decentralized systems of urban government has defined the study of local government for four decades. The first rounds of this contest focused on the ability of decentralized units to efficiently respond to the demands of citizens within their boundaries (Lowery, Lyons, & DeHoog, 1995; Neiman, 1976; Teske, Schneider, Mintrom, & Best, 1995). Building on the work of Tiebout (1956), advocates of decentralization advanced a theory of public goods that linked intergovernmental competition to service responsiveness and efficiency. While not entirely conceding defeat at this level, advocates of consolidation shifted the focus of the debate to a regional level. The “neoprogressive” case for centralization argues that consolidation of existing government units and creation of regional governments with significant powers to control land use and development can better promote economic development, reduce inequality, and address social, economic and environmental externalities (Basolo, 2003; Lowery, 2000, 2001). The underlying assumption of this perspective is that fragmentation precludes concerted responses to interjurisdictional problems (Downs, 1994; Katz, 2000; Warner & Hefetz, 2002). Thus, local governments are unable to deal with spillover problems that result when the policy choices in one community impose costs (or benefits) on others. This assumption has gone mostly unchallenged because rational choice theories have focused primarily on competition as the coordination mechanism in local public economies. Although Direct Correspondence to: Richard C. Feiock, Askew School of Public Administration and Policy & Devoe Moore Center, Program in Local Governance, Florida State University, Tallahassee FL 32303. E-mail: [email protected]. JOURNAL OF URBAN AFFAIRS, Volume 29, Number 1, pages 47–63. Copyright C © 2007 Urban Affairs Association All rights of reproduction in any form reserved. ISSN: 0735-2166. 48 II JOURNAL OF URBAN AFFAIRS II Vol. 29/No. 1/2007 Feiock (2004) argues that collaboration through institutional collective action can produce coordinated metropolitan governance, at best he provides an incomplete account of how or under what conditions cooperative governance arrangements might emerge. Lowery describes the regional governance debate as one-sided because “public choice scholars have hardly recognized the new arguments raised by the neoprogressive research” (2001: 134). This essay takes up this challenge and offers a rational choice explanation for how decentralized voluntary governance arrangements arise and evolve over time to address multi-jurisdictional or regional problems. Elinor Ostrom (2005) distinguishes between firstand second-generation rational choice models. First-generation models were based on rational egoist assumptions that individuals have complete information, consistent preferences over outcomes, and seek to maximize material benefits. This approach has proven very valuable for predicting behavior in economic markets as well as stable competitive political settings such as elections and, in some instances, public goods markets (Ostrom, 2005: 100). Second-generation rational choice models explicitly take the context of collective decisions into account. Simply saying context matters is not a satisfactory approach. In order to generate testable propositions, a rational choice explanation must systematically address how context matters in specific choice situations, and how it affects the calculus of individual or corporate actors. Many situations generate only partial information that may be distributed asymmetrically and the structure of the situation may cause actors to view risk, uncertainty, information asymmetries, and the actions attributes of other participants differently (Ostrom, 2005; Vanberg, 2002). The next section outlines a rational choice explanation for cooperation among local governments in metropolitan areas. It identifies the interests that motivate interlocal collaboration and argues that voluntary agreements emerge from a dynamic political contracting process. Bilateral contracting and multilateral collective action are mechanisms by which two or more governments act collectively to capture the gains from providing or producing services across a larger area. Taken together these mechanisms can be referred to as institutional collective action (ICA) (Feiock, 2004, 2005). ICA focuses on how local government officials perceive and weigh the various costs and benefits of cooperation as they contemplate interlocal service agreements and other forms of intergovernmental cooperation. Although service cooperation can produce substantial benefits, local officials often perceive the costs of attaining those benefits as exceeding potential gains. How officials understand these costs will depend on the context of the decision setting, including the characteristics of the good or service being considered, the configurations of political institutions under which they operate, and the networks of existing relationships among local government officials. A contextual explanation of regional governance points not only to the potential for voluntary regionalism, but also to its limitations. Where transaction cost barriers to institutional collective action are substantial, voluntary regional governance may not be possible and governmental approaches such as consolidation and regional districts may be more efficacious. After specifying the individual and collective benefits for local actors that can motivate interlocal cooperation, I identify the transaction problems that limit cooperative interlocal service arrangements. A rational choice explanation for interlocal cooperation is presented in which agreements occur where net benefits exceed the transaction costs of bargaining. A systematic explanation is then presented for how specific community characteristics and formal and informal institutional arrangements reduce transaction costs of information/coordination, negotiation, enforcement, and agency. Based on the logic of this framework I present sets of propositions regarding how each of these contextual factors influence the transaction costs of cooperative actions and thus the success of voluntary regionalism. The final sections review evidence supporting these propositions gleaned from empirical analyses of fiscal relationships and case analysis of interlocal cooperation at three levels: metropolitan II Rational Choice and Regional Governance II 49 areas, local government units, and policy ties or agreements. This is followed by a discussion of implications of this second-generation rational choice explanation for the study and practice of regional governance.