Pairwise Relations and Joint Ventures for Economic Development

This paper explains the time needed to negotiate the costs and benefits of voluntary joint ventures among local governments for economic development purposes. The dyad between local governments is the unit of analysis. The characteristic of the institutional tie is collected for 90 cooperative arrangements identified through a survey of local government officials in 12 metropolitan areas. Since not all of the governments have established a joint venture, a Heckman two-stage selection model is used to correct for the selection bias. Extending recent work on Institutional Collection Action the results suggest that those communities with similar demographic and economic characteristics and a history of cooperation reduce negotiation time. The results also indicate that asset specificity is an important predictor for the amount of time needed to discuss joint venture activities. To be presented at the Southern Political Science Association annual meeting, New Orleans, Louisiana. January 10, 2008 Introduction Local governments are actively engaged in shaping their local economies with policies aimed at increasing employment and wages, building and maintaining an economic base and addressing fiscal issues. Not surprisingly, competition has been the norm in the policy area of economic development (Pagano and Bowman, 1997). Research indicates that municipal approaches towards development have changed as larger economic systems have evolved. The transition to a postfordist economy, for instance, has resulted in communities reassessing their development efforts and moving towards more network relations. Smoke stack chasing policies have gradually, but not completely, given way to more entrepreneurial policies and innovative partnership arrangements with the private and public sectors (Bradshaw and Blakely, 1999). Trends in local development policy indicate that cooperative intergovernmental projects among government units are steadily increasing (Agranoff and McGuire, 2003; Clarke and Gaile, 1998). Confronted with resident demands for adequate service levels and the changing dynamics of urban and regional economies, local governments are establishing agreements with one another to improve future development potential or maintain their existing industry base. As local governments become more active in horizontal relations, there needs to be a clearer understanding of the influential factors that underlie cooperative behavior. Using the theoretical framework of Institutional Collective Action as a guide (Feiock 2007), this study empirically tests the extent to which prior relations and the similarities across communities reduce the time of negotiating the costs and benefits of intergovernmental agreements. In the first section I discuss transaction cost theory and the homophily hypothesis. I then outline how