Form of Government

Form of Government,
Administrative Organization,
and Local Economic Development Policy
Richard C. Feiock
Florida State University
Jae-Hoon Kim
Downloaded from https://academic.oup.com/jpart/article/11/1/29/894577 by guest on 10 October 2023

Seoul National Polytechnic University
ABSTRACT
Recent theoretical work has applied transaction cost theories

to the public sector. This article extends transaction cost theories
of organization to an empirical examination of bureaucratic influ-
ences on local government development programs.
Extant research has paid little attention to the role that
administrative organizations, institutions, and bureaucracies play
in the local development process. Administrative organization can
shape development choices in two ways. First, form of govern-
ment may have direct additive effects on development because
professional public managers have different orientations, values,
and career interests than elected executives. Second, form of
government may have nonadditive or interactive effect by influ-
encing levels of government responsiveness to exogenous eco-
nomic, political, and bureaucratic demands.
We estimate the influence economic forces and bureaucratic
arrangements had on development program activity in 1989 after
accounting for development programs in place five years earlier
in the same cities. Our finding calls into question the causal
inferences regarding the direct effects of administration on local
development policy found in the literature. In addition, we find
that the form of government mediates effects of administrative
arrangements and economic forces on development policy. In
particular, the influences of strategic planning on development
policy were evident in council-manager cities, but not mayor-
we would like to thuk Juan in.tcher ^ ^ communities. This finding suggests that commitments to
tot DIM assistance with data collection and , , , . , . . ,
take certain actions and not others embodied in strategic plan
may be less credible in the context of high power electoral
J-PART 11 (2000): 1:29-49 incentives.
291Journal of Public Administration Research and Theory

Government, Administrative Organization, and Local Policy
To what extent do government structure and the institutions

and organizational arrangements of development administration
shape cities' economic development actions? This issue has not
been systematically addressed, yet it is critical for the efficiency
and the distributive consequences of development programs.
Most work on development policy choices either has contended
that all cities have a unitary interest in promoting development
(Peterson 1981) or has explained variation across cities based
upon the political incentives of local elected officials (Clinger-
mayer and Feiock 1990).

The focus on the attractiveness of economic development
activities to elected officials reflects assumptions that local
political systems can be viewed as a political market in which
local elected officials are responsive to the economic demands
and preferences of specific constituencies. In other words, citi-
zens, organized constituencies, and other interests demand public
programs, and elected officials supply them. The outcome of this
process may or may not lead to development policy choices that
reflect the economic interests of the average taxpayer, depending
on the strength of electoral constraints and the advantages of
well-organized interests (Cable, Feiock, and Kim 1993). Missing
from this formulation is any meaningful role for government
administrative structures, development organizations, and bureau-
cracies. While this approach has proved useful, propositions
based on electoral incentives provide little room for institutional
constraints and administrative arrangements to influence policy
choices.
This article extends this work by building on a transaction

cost framework to examine bureaucratic influences on develop-
ment as well as the nonadditive influence of government form on
development policy making. We then estimate the effects com-
munity characteristics and administrative factors have on changes
in development policy activity under council manger and mayor-
council forms of government. We find no direct effects and
modest support for the hypothesized interactive effects of govern-
ment form and administrative arrangements on local development
policy. This finding calls into question the causal inferences
regarding the direct effects of administration on local develop-
ment policy found in the literature. In conclusion, we highlight
the institutional tradition in urban research, link this work to
that foundation, and suggest directions for additional research
grounded in this tradition.
30/J-PART, January 2001

TRANSACTION COSTS, ELECTORAL INCENTIVES,

AND PROMOTION OF ECONOMIC DEVELOPMENT
Recent theoretical work has extended transaction cost theo-

ries of organization to the public sector (Horn 1995; Frant 1996;
Maser 1998; Williamson 1999). Oliver Williamson (1988) distin-
guishes high-power and low-power incentives in the private
sector. In markets, individual profits provide high-power incen-
tives for efficiency, but these high-power incentives can also
induce opportunistic behavior. Expectations of opportunism
create transaction costs deleterious to social efficiency. These

transaction costs are reduced in hierarchical organizations where
low-powered incentives such as organizational advancement pre-
dominate. While they are less effective in inducing responsive-
ness to economic demand, these low-power organizational incen-
tives reduce the risks of opportunism. Building on Williamson's
model, Howard Frant (1996) distinguishes between high-power
and low-power incentives in the public sector. While profit
incentives may not be present in the public sector, the desire for
reelection functions as a high-power incentive. When citizens are
not well informed and have difficulty monitoring politicians'
behavior, "politicians are apt to be unscrupulous about what they
do to ensure reelection. They may, for example, choose to spend
money on highly visible things even, when fully informed citi-
zens would prefer [spending in] less visible areas" (Frant 1996,
371).
The potential for local leaders to overpromote development

for electoral gain is substantiated by extant research. This work
has devoted considerable attention to how elected leaders may
support new development programs in order to promote their
political interests (Swanstrom 1985; Clingermayer and Feiock
1990; Sharp 1991). This work also demonstrates that certain eco-
nomic development programs provide visible benefits for which
politicians can claim credit and can reward constituents (Feiock
and Clingermayer 1986; Wolman 1988). We argue that certain
local government structures and administrative arrangements may
replace high-power incentives with low-power incentives, just
like hierarchical organizations and not-for-profit organizations
reduce market transaction costs.
To date little attention has been directed to the adminis-

trative actors and organizations involved in development policy
making. With the exception of the work of Fleischmann and
Green (1991) regarding the organization of local agencies to
promote development, the role that administrative organizations,
institutions, and bureaucracies play in the local development
process has been neglected in development research.
31/ J-PART, January 2001

Administrators and development organizations can influence

policy choices through their strategic positions and their control
over information. Furthermore, we contend that administrative
structures, processes, and capacities shape the nature of public-
sector incentives in ways that will facilitate or constrain political
opportunism in development policy choices.
Form of Government and Development Opportunism
The study of local governance structures has a rich history.

Following the work of Banfield and Wilson (1963), Lineberry

and Fowler (1967) examined the proposition that council-manager
government insulates governing from "private regarding"
demands. They found that "when a city adopts a reform struc-
ture, it comes to be governed less on the basis of conflict and
more on the basis of the rationalistic theory of administration"
(p. 710).
The form of government embodied in the city charter is a

constitutional contract that reduces the transaction costs for
citizens to influence public choices by defining the civil rights to
have one's preference included in the making of public decisions
(Maser 1985 and 1998; Miller 1985). The institutional rules of
the game in reform governments provide incentives for an
emphasis on citywide issues and constituencies, and they place
constraints on politicization of administrative issues. In the
unreformed context, the rules provide incentives for the emerg-
ence of narrow issues and constituencies and constraints on the
elevation of technical expertise over popular responsiveness
(Sharp 1997, 264).
The public-sector transaction cost framework (Frant 1993,

1996) suggests that government form might shape development
choices in two ways. First, form of government may have a
direct additive effect on development policy because professional
public managers have different orientations, values, and career
interests than do elected executives. Second, form of government
may have a nonadditive or interactive effect because it can
influence the level of responsiveness of government to external
economic and political demands.
The depiction of local officials operating in a political

market, in which they passively respond to community economic
demands and needs, provides an incomplete picture of the polit-
ical reality that surrounds the local economic development policy.
Citizens do not possess perfect information or have the time and
capability required to accurately calculate benefits and costs of
development programs. Moreover, the precise estimation of the
3UJ-PART, January 2001

benefits and costs is not an easy task, and it is contingent upon

many technical assumptions as well as the time frame under
consideration. In this context, development policy provides
opportunities for elected leaders to respond to high-power incen-
tives through the provision of development programs.
Under mayor-council government, officials who seek reelec-

tion might maximize political support by symbolically advocating
the adoption of new development instruments that provide short-
term political benefits. Political demands for development in the
face of economic and population decline make it difficult for

local leaders not to support new development actions, even if
they are costly and unlikely to succeed. The dominance of high-
power incentives in mayor-council systems means that local polit-
ical officials may have a great political interest in the promotion
of development, and therefore they may expand the use of finan-
cial incentives that provide opportunities for credit claiming or
whose effects will be visible.
Council-manager government may not be as profoundly

influenced by high-power incentives. Frant (1993) describes the
council-manager system as distinct governance structure. This is
not to say that professional city managers are less self-interested
than are elected officials; they simply have different, lower-
power incentives regarding economic development programs than
do elected executives (Schneider, Teske, and Mintrom 1995).
Because city managers are attentive to their professional peers
and to norms of professional management espoused by organiza-
tions such as the International City/County Management Associa-
tion (Nalbandian 1989), managers may not further their career
goals by supporting financial incentives or subsidies that might
harm the city's fiscal position. Such development actions may not
be in their career interests, even if politically popular. Studies of
service contracting (Stein 1991) and administrative reform (Ruhil
et al. 1999) suggest that the pursuit of efficiency in management
strategies increases the employment opportunities for professional
local government managers.
While the direct additive effects of form of government on

policy choices may be limited (Morgan and Pelissero 1980), this
additive relationship between reformed and unreformed institu-
tions and development policy activity is not the key question
from the perspective of institutional theories of governance
(Ostrom 1990). Instead, governing institutions, like the form of
government, are expected to condition the relationship among
economic demands, administrative organizations, and economic
development activity—an interactive, rather than an additive,
effect. The council-manager form of government has long been

viewed as a means to insulate local decisions from high-power

political incentives (Lineberry and Fowler 1967; Lyons 1978).
Council-manager government may enhance local officials' ability
to match development policies to specific economic needs, rather
than to simply respond to political pressures for new development
initiatives. While much of the literature has ignored the inter-
active effects of government form on development, one notable
exception is Elaine Sharp's study (1991) of strategies and finan-
cial incentives used by cities reporting the use of development
plans in ICMA's 1984 survey of development practices. She
found that the link between fiscal stress and the number of finan-

cial incentives offered is conditioned by form of government: the
greater the dependence upon nonreformed structures the stronger
the linkage. "The pressure to respond to fiscal stress with finan-
cial incentives and the adoption of many development strategies
appears to be negligible in reformed settings, but substantial in
unreformed settings" (p. 142). Nevertheless, her conclusions are
based on comparison of bivariate correlation coefficients between
distress and policy for cities with different forms of government.
Such an approach is inappropriate for evaluating conditional rela-
tionships (Wright 1976; Aiken and West 1991).
Administrative Arrangements and Development Activity
In addition to the structure of executive authority as defined

by the form of government, certain administrative arrangements
for the organization of development functions in government may
constrain executives' political opportunism and may allow
bureaucrats to promote their own policy preferences. Administra-
tive institutions determine the access that administrators and
bureaus have to decision making and to information and other
resource advantages. Several characteristics of the administrative
context might therefore be particularly important for local eco-
nomic development policy.
The first characteristic of the administrative context con-

cerns whether the locus of economic development authority is
based primarily in local government or whether a quasi-govern-
mental authority or nongovernmental actor plays the lead role in
local development. Structure can be important both for substan-
tive and for symbolic reasons (Fleischmann and Green 1991).
Where development responsibility is primarily in the hands of
city government rather than a private or quasi-public organiza-
tion, development policy may reflect different orientations and
may be responsive to different publics (Sharp 1991). Second, we
expect the organizational location of development functions
within city government to shape efficiency enhancing incentives
and development policy preferences. Third, whether or not the

community has a formal economic development plan may con-

strain local policy choices and institutionalize the norms and
values of professional development administrators in the policy-
making process, resulting in more discriminatory adoption of
development instruments. We expect that each of these institu-
tions may operate differently in the context of council-manager
than in mayor-council government.
The Locus of Economic Development Policy

The type of agency that plays the lead role in local develop-
ment may directly and indirectly shape policy choices. Sharp
(1991) directed attention on the "locus of development decision-
making." She found that where responsibility for the economic
development function lies primarily in the hands of private organ-
izations such as the chamber of commerce or quasi-public organi-
zations such as special districts or local development corpora-
tions, decision making was more responsive to development
interests. On the other hand, where development responsibility
was primarily in the hands of city government, rather than a
private or quasi-public organization, development policy was
responsive to a larger public (Sharp 1991).
Other research has suggested that development districts or

authorities act to restrain high-power electoral incentives by
taking development programs out of the city's domain. Stein-
acker's (1991) application of the prisoner's dilemma model to the
relationship between a city and industrial firms predicts that a
nongovernmental locus for development decisions will restrict the
level of development activity by local government. "Since the
mayor's dominant strategy is to concede everything, restrictions
will bring his strategy closer to the city's strategy" (p. 13).
The development choices of elected officials are shaped, in

part, by information provided by local development agencies.
The dependence of legislative bodies on bureaus for information
about the need or demand for programs and the associated costs
provides opportunities to strategically influence policy and
allocation decisions. The manner in which information asymme-
tries translate into policy choices depends upon both the strategic
position and the policy preferences of the agency. Early public
choice models of bureaucracy suggested that agencies use infor-
mation asymmetries merely to maximize the scope of their own
programs to the neglect of strategic interests other than budget
maximization (Niskanen 1971). The capacity of bureaucrats to
augment community demand results from their monopoly on
information regarding the true costs of programs and their
responsibility to assess the private supply and public benefits of

growth. From a different perspective, Herbert Rubin (1989)

argued that economic development practitioners in government
become advocates for the expansion of business. Because the
costs of development are difficult to calculate and have low
visibility, business expansion is typically counted as success
regardless of the cost to the community. Organizations within
government are more likely to link their success to programmatic
expansion and expansion of the number of development programs
adopted.
Contemporary study of bureaucracy rejects as unrealistic

Niskanen's assumption that bureaucracy has a monopoly on infor-
mation. Instead, the new institutional economics (Moe 1984)
identifies information asymmetries, but it posits a less restrictive
specification in which allocation decisions and agency outputs are
a function of the relative capacity and strength of agencies as
well as the extent of their independence from control and over-
sight from elected officials (Miller 1992; Bendor, Taylor, and
Van Galen 1987). Development authorities that employ profes-
sionals may attempt to make policy choices conform to their pro-
fessional norms rather than just to budget maximization. When
they are guided by these professional norms, extragovernmental
authorities will advocate a targeted approach to development
rather than nondiscriminatory proliferation of development pro-
grams (Wilson 1999). Moreover, quasi-governmental organiza-
tions are less easily controlled by elected executives who are
motivated by high-power electoral incentives than by govern-
ment-based development organizations (Frant 1997). For this
reason we expect that the positive effect of government-based
agencies on development activity will be stronger under mayor-
council government than under council-manager government,
where low-power incentives are more pervasive.
The Position of a Development Agency

Within Local Government
The institutional position of development responsibility

within city governments—its organizational location—may have
consequences for the attention given to development policy issues
by elected officials and the influence of bureaucrats and interests
on development policy choices. Specialized agencies may provide
better coordination and expertise than line agencies provide but at
the same time they may have greater incentive to support devel-
opment programs for their symbolic value (Green, Fleischmann,
and Kwong 1996). Fleischmann and Green (1992) explored vari-
ous organizational arrangements for economic development agen-
cies and argued that retaining development functions within the
executive may allow growth programs to receive higher priority.

When economic development is performed by a line agency, it

can be organized as a separate department, combined with a
traditional line agency, or assigned to an agency with a broader
growth management scope.
A specialized line agency devoted exclusively to economic

development and growth promotion often brings a technocratic
orientation to development policy (Wilson 1999). If this is the
case, "such an organization scheme might be more efficient and
accountable than if these tasks were decentralized to line
departments" (Fleischmann and Green 1991, 5). While develop-

ment programs that are housed with other line departments can
better integrate development with other functions, this arrange-
ment can dilute the economic mission of these programs (Luke
et al. 1988). A specialized agency might also facilitate decisions
based on long-term, rather than short-term, economic needs. Eco-
nomic development specialists seek to match development poli-
cies to specific economic conditions and needs. Agencies that
employ such professionals may seek to influence policy decisions
in order to provide greater congruence with professional norms
and their expert assessments of correct policy interventions.
For these reasons, if economic development is organized as a
specialized development agency, we expect fewer new develop-
ment instruments to be adopted than if development functions are
added to the missions of an existing line or staff agencies. We
would expect this relationship to be stronger under council-
manager government because executives' development policy
preferences are less likely to be shaped by high-power incentives.
A Strategic Economic Development Plan
In addition to formal organizational arrangements, institu-

tions that structure or constrain decisions influence policy choices
(North 1990). One such institution is a formal development plan.
Strategic planning has implications for what an organization does
and why it does it (Bryson 1995). In a study of strategic planning
in seventeen local governments, Kemp (1992) found strategic
planning to be an effective instrument in limiting political influ-
ence on decisions.
A strategic plan for economic development may institu-

tionalize the norms and values of professional development
administrators in the policy-making process. This could result in
the adoption of fewer costly financial incentives than their less
discriminating competitors. Some evidence suggests that cities
with a strategic plan use more, rather than fewer, development
incentives than cities without one (Fleischmann, Green, and
Kwong 1992). Nevertheless, this could indicate that cities with

larger numbers of incentives in the first place adopt strategic

plans to manage their development efforts, rather than strategic
plans that encourage the nondiscriminatory adoption of multiple
development instruments.
Strategic planning has been considered essential to success-

ful development programs because it limits development options
and can insulate the decision-making process from narrow, short-
term interests, and thus lead to a more rational process for
development decision making (Blakely 1989). For this reason, we
expect the presence of a strategic plan to constrain politically

driven expansion of development programs. While a more dis-
criminating strategic approach may encourage the expansion of
some development strategies, it will discourage the adoption of
others, particularly costly financial incentives. While executives
may ignore strategic plans in the face of high-powered electoral
incentives, we expect such plans to be more effective constraints
on development policy in the context of council-manager govern-
ment. The following section specifies the methods employed to
test the influences of government form and administrative
arrangements on development policy activity.
ANALYSIS
Our knowledge of what accounts for local governments'

development policy choices is based almost entirely on efforts to
explain the development policies in place at a specific time. This
is particularly unfortunate because the theories are dynamic and
focus on policy adoptions. One exception is Laura Reese and
Davis Fasenfest's study (1996) of change in local development
practices between 1990 and 1994 in Michigan and Ontario.
Nevertheless, Reese and Fasenfest were unable to test their
explanation for policy changes because they were working with a
small number of cities and had to rely on trend analysis for two
samples rather than on a panel design. We address this limitation
by estimating development activity in 1989 while controlling for
the development policies in place five years earlier in the same
cities.
Hypotheses regarding the effects of bureaucratic arrange-

ments on development policy choices are tested using data from
surveys conducted by the International City/County Management
Association (ICMA) in 1984 and 1989. The ICMA surveyed over
two thousand local governments regarding their economic devel-
opment policies and programs (Farr 1990). We seek to explain
cities' development activity based on the number of specific
programs in place in 1989. In order to isolate change in the use
of various development programs we need to account for the
3Z/J-PART, January 2001

policy instruments already in use. We control for cities' experi-

ences with development policy by merging the city-level data
from the 1984 and 1989 studies. Many of the questions on the
1984 survey were replicated in 1989. We were able to obtain
information on the use of specific development programs in both
years for 516 cities. This represents 53.4 percent of the 1989
respondents.'
The late 1980s was a dynamic period in which the U.S

'The ICMA survey data overrepresenti
communities with the council-manager
economy experienced major structural change and cities became
increasingly innovative, activist, and competitive in their use of

form of government. In the panel sample
381 of 516 cities (74 percent) have economic development tools. It also marked the end of a tough
council-manager government*. Sanders period of economic recession. The ICMA surveys encompass an
(1979) reports that 56 percent of the cities
in thii population category had council array of development policy tools that were adopted during this
manager governments. Some regional bias period. City managers or chief administrative officers reported
has also been demonstrated in the ICMA the use of several general strategies, as well as the specific policy
surveys (Fleischmann, Green, and Kwong
1992). The appendix shows a comparison
instruments or tactics within a particular strategy. We coded the
of the distribution of respondent cities policy instruments 0 if they were not used and 1 if they were
across regions for the population of cities used, and summed them for each year. To isolate the use of
in 1989, the 1984 and 1989 ICMA specific development strategies we followed the procedures of
samples, and the panel sample.
Fleischmann, Green, and Kwong (1992). For the subsample of
'Loan incentives included sale-lease back, 1984 respondents that is included in our panel, we factor ana-
loan guarantees, loan subsidies, and direct lyzed the specific policy instruments that were used in 1984
loans to projects. Financial incentives within each of the twelve categories that are reported on the
included tax exempt bonds, in-kind pay-
ments, direct cash contributions, dona-
survey. The factor analysis results for these 516 cities were
tions of properly, deferred equity, and consistent with Fleishmann, Green, and Kwong's results for the
shared equity. Business retention included full sample, in that nine of the twelve strategies were found to be
advertising and distribution of printed unidimensional. In addition, we had to eliminate revitalization
materials, field visits, and meetings
between community leaders and prospec-
activities from further analysis because questions on specific
tive new businesses. Regulatory reform policy instruments were not replicated on the 1989 survey. From
included consolidated permits, building the eight remaining strategies we constructed an additive index
inspection restructuring, ombudsman, for each year.2 Summary statistics on the use of these strategies
modified zoning, and regulatory negotia-
tion with developers. Land management in 1984 and 1989 are presented in exhibit 1. The mean number
included consolidation of lou, condemna- of development instruments used in 1989 was 16.3. There was
tion, land acquisition, business relocation, substantial variation in city development activity, with standard
clearing land, technical assistance, sale of
deviation of 9.19. The mean number of programs increased only
land, land use agreements, and assign-
ment of air rights. Historic preservation slightly from 1984, but this masks substantial variation in the use
included rehabilitation assistance, rehabil- of specific strategies. There were fewer historic preservation and
itation by city, facade restoration, tech- aesthetic improvement programs used for development in 1989.
nical assistance, regulatory assistance,
programmatic incentives, establishment of
On the other hand, regulatory reforms, land management, facility
historic districts, and standards for build- improvements, business attraction/retention programs, and the
ing alterations. Aesthetic improvements number of financial and loan incentives were used more in 1989.
included sign control, facade improve-
ments, antilitter efforts, decorative plant-
ing, and pedestrian amenities. Facility One limitation to this data is that it indicates how many
improvements included water purification, development policy tools have been adopted but not the intensity
sewerage collection, streets, sidewalks, of use or resource effort directed to economic development.
bridges, parking garages, public transpor-
Nevertheless, policy adoption is a theoretically important out-
tation, and recreation facilities.
come (Green, Flesichmann, and Kwong 1996, 613). The use of

Exhibit 1
Mean Policy Instruments for Economic Development
in 1984 and 1989
Development Policy Strategies 1984 Mean (N) 1989 Mean (N)
Loan incentive programs .392 (513) .806 (515)

Financial incentives .795(513) 1.136(515)
Business attraction/retention 1.643(512) 3.118(515)
Regulatory reform 1.175(510) 1.544(513)
Development land management 2.633 (510) 3.814 (515)

Historic preservation 2.070(511) .763(515)
Aesthetic improvements 2.881 (513) 2.248 (515)
Facility improvements 2.027 (509) 2.918 (515)
Total development instruments 16.171(490) 16.354(513)
particular development programs and strategies, even if they are

unaccompanied by resource commitments, provides signals of a
probusiness environment. Because large capital investments such
as production facilities are fixed assets, their future value can be
affected by local government regulatory policies, land use poli-
cies, and tax policies. Concern about business climate is more
than symbolic if uncertainty about future actions can increase the
risk of investment in a community. In addition, policy adoption is
directly relevant to our interest in administrative constraints on
politicization of development policy making. Policy adoption may
be particularly useful for investigation of the influence of political
and bureaucratic institutions. While resource commitment to
development activity has been linked to structural theories of
development, policy adoption is linked to political and organiza-
tional theories (Hammer and Green 1996).
We examined the role of institutions and bureaucratic struc-

tures on the use of these development strategies, based upon the
organizational arrangements reported in the 1984 ICMA survey.
Form of government was classified as mayor-council (coded 0) or
council-manager (coded 1). The ICMA survey examined whether
the locus of organization for development policy is public or
private. We constructed a government locus variable, which was
coded 0 if a quasi-public or private organization was most active
in the promotion of development and coded 1 if local government
was the lead organization. A department variable was also con-
structed to measure the location of development functions in local
government. If development activities were centralized in a sepa-
rate department, this variable was coded 1; other arrangements
were coded 0. We then added an indicator of whether the local

government had officially adopted a strategic plan for economic

development as of 1984.
For each equation that estimated development policy strate-

gies in 1989, we included as an independent variable the lagged
value of the dependent variable in the form of the number of
instruments used in 1984. In addition, we added controls for the
cities' economic condition and population characteristics that may
indicate demand for development. Respondents to the 1984
ICMA survey assessed whether the economic base of the com-
munity had experienced over the previous five years: rapid

expansion (> 25 percent); moderate growth (10-25 percent);
slow growth (< 10 percent); no significant growth or decline;
modest decline (< 10 percent); or significant decline (> 10 per-
cent). Population decline was measured as the percent change in
population between 1970 and 1980. Larger cities were expected
to adopt more programs due both to the diversity of resources
and to the pressures for doing so (Fleischman, Green, and
Kwong 1992; Neiman and Fernandez 1999). Indicators of decline
of population and economic base more readily translate into
demands for economic development than into fiscal measures
(Clingermayer and Feiock 1990). We expected that economic and
population decline would result in increased economic develop-
ment activity, especially under mayor-council government. The
percent of the population below the poverty level provided a
measure of citizen need and potential redistributive demand.
Suburban status, based on whether a community was classified as
a suburb, was coded 1, and central cities and independent cities
were coded 0. We expected less development policy activity in
suburban communities, because suburbs benefit from the disper-
sion of activity within metropolitan areas and have less need to
promote growth (Fleischmann and Green 1991). We also added a
set of state-level dummy variables to the equation to control for
fixed effects in the regression estimation as well as differences
in state economic development enabling legislation (Reese 1991).
Our expectation was that measures of community economic
demand for development, particularly population and economic
decline, would be more strongly linked to development policy
activity in mayor-council than in council-manager communities.3
We estimate the effects of institutions and bureaucratic

arrangements using OLS regression techniques. In the first col-
'Standard multicollinearity diagnostics umn of exhibit 2 we estimate equations for the total number of
were within reasonable limits for all vari- development programs enacted. We found that several factors
ables. In addition, we examined plots of
residuals against predicted values and
influence the use of these development policies, but the results in
against independent variables in turn. We exhibit 2 do not provide support for institutional and adminis-
found no sign of nonlinearity or hetero- trative arrangements' influence on development policy choices.
sc elasticity. After controlling for economic demands and the policies that

Exhibit 2
Estimates of Development Policy Activity
All Mayor-Council Council-Manager

Variables Cities Cities Cities
Policy 1984 .337** .284** .319**

(5.83) (2.23) (4.68)
Population -.001 .012** -.001
(-.88) (2.52) (-1.07)

Population decline .008 .048* .041
(.02) (1.85) (.23)
Economic decline .405 .990 .467
(1.29) (1.12) (1.08)
Poverty .271** .090 .348**
(2.33) (-.04) (2.52)
Suburb -2.35** ^.89* -1.88
(-2.07) (-1.80) (-1.46)
Government locus .182 .560 .259
(.20) (26) (.23)
Separate department .737 1.91 .988
(.57) (.64) (.65)
Strategic plan -1.184 -.783 -2.60**
(-.96) (-.51) (-2.01)
Form of government -.012 — —
(-.10) — —
Constant 11.10 14.50 9.20
N 420 92 326
2
Adjusted R .31 .62 .29
F 6.08** 3.33** 4.27**
"significant at .05, 2 tail test; 'significant at .10, 2 tail test
were in place five years earlier, no significant effects from

institutions and organization were found in development activity.
The use of each policy in 1984 was the best predictor of

the number of development policies that were in place in 1989.
Somewhat surprisingly, the effects of population change and the
decline in the economic base were not related to these develop-
ment activities. Poverty levels had a positive and significant
effect on development policy activity. Suburbs had fewer devel-
opment policies.

Our findings diverge sharply from those of Fleischmann,

Green, and Kwong (1992) when it comes to the organization of
development. Neither city government locus for development,
nor a separate development organization, nor a strategic plan had
any significant effect in our specification that controls for
previous levels of development policy. This finding calls into
question the causal inferences found in the literature regarding
the effects of administration on local development policy. The
additive effect of government form also had no significant effect
on the number of development policy tools cities used. This
result is consistent with previous findings that form of govern-

ment is unrelated to city economic development policy choices.
By itself, this result may not be surprising because it reflects only
additive effects. We earlier posited that the effect of government
structure may be intervening as well as additive, because struc-
ture affects responsiveness to economic and organizational forces
and because high-power incentives are more or less pervasive. If
form of government has such an intervening effect, we would
expect population and economic decline—as well as administra-
tive institutions—to have different effects on the number of devel-
opment programs adopted in mayor-council communities than
they have in council-manager communities.
We modeled the interactions between form of government

and the independent variables in two ways. First, we estimated
our models separately for each form of government in order to
examine differences in the coefficients for each of the inde-
pendent variables under each form of government. Second, we
estimated an unrestricted model for all cities that included
interaction terms for the products of council-manager government
form and each independent variable in the model. This allowed
us to test whether differences in the effects of the demand and
administrative variables under each form of government were
statistically significant. A full model, which included interaction
terms and allowed different slopes for each type of city, was
compared to the restricted models from column 1, which had the
restriction that the slopes for each type of city were equal.4 The
F test, which compares explained variance in the restricted and
unrestricted models, was statistically significant as were inter-
*By testing for the equality of slopes action terms for population, population change, poverty, and stra-
among the two sets of observations, (his tegic planning.
statistic indicates whether slopes are
significantly different in council-manager
cities than in mayor-council cities. The For ease of interpretation, columns 2 and 3 of exhibit 2
F test is based on a comparison of the full report the coefficient estimates for mayor-council and council-
model, which allowed different slopes for
each government type with the restricted
manager models. The results reported in exhibit 2 are consistent
model that forces the slopes for all city with the unrestricted model results. While the impact of most
types to be equal (Wright 1976; Aiten variables was consistent across government types, we found
and West 1991). differences in the effects of several variables. Population and

population decline had greater effects on development policy

activism under mayor-council government. In council-manager
cities, the proportion of the population below poverty was posi-
tively related to development activity, but this was not the case in
mayor-council cities. Perhaps targeted development activities
were used as an alternative to redistribution in council-manager
cities. One recent study of development in Florida found that
development programs were used for redistributive purposes in
some council-manager communities (Tao and Feiock 1999).
When we turn to our administrative variables, we find

modest evidence that these institutions are more effective con-
straints on development activity under council-manager govern-
ment. The effects of government locus and a separate city
development department were insignificant under each govern-
ance system. The one administrative arrangement that operated
differently under council-manager government was the strategic
plan. The presence of a strategic plan had no effect under mayor-
council government, but it reduced development activity under
council-manager government.3
DISCUSSION
Although economic development activities in local govern-

ment have been linked to the political incentives of local officials,
previous research has neglected the role of local administrative
institutions. Our analysis does not show that administrative insti-
tutions directly influenced development program adoptions in this
set of cities. These findings diverge from earlier work and call
into question some of the causal inferences regarding the effects
of administration on local development policy found in the
literature.
Previous findings that city government locus for develop-

ment and a separate development organization are associated with
expansive development activity (Fleischmann, Green, and Kwong
1992) may show that these organizational forms were adopted to
manage expensive development activity rather than that develop-
ment activity expanded under these institutional forms. The locus
of development authority and the use of a separate department
'Auxiliary analysis not reported here exhibit significant cross-sectional correlation with the number of
found that strategic plans led to lets use development program policies in both the 1984 and 1989 data
of financial incentives, but greater use of
sets. When we examined the lagged effect of these organizational
loan and business attraction strategies.
This sort of discriminating effect is con- arrangements and we controlled for previous levels of develop-
sistent with the goals of strategic ment policy activity in exhibit 2, we found no evidence that these
planning institutions affect the expansion of development activity.

The lack of influence for government structures and admin-

istrative organization may reflect our focus on policy activity
rather than reflect the resource commitment cities make or the
specific policy instruments they choose. Hammer and Green
(1996, 332) contend that "the processes contributing to policy
adoption may be different from those influencing the level of
incentives to promote growth." While they suggest that organiza-
tional factors my be more important for policy adoption than for
resource commitment, the effects of administrative institutions on
incentive costs remain unexamined. Additionally, when we exam-
ine the aggregate development activity we may mask effects of

administrative institutions on the choice of specific policy instru-
ments.
The choice of instruments or mechanisms for policy inter-

vention has received increasing attention (Linder and Peters
1989). Salamon (1989) has urged policy research to move its
focus from content-based categories of government actions to an
examination of specific tools or instruments of government
action. It is possible that government development responsibility
or a separate department could stimulate the adoption of certain
types of policies while at the same time it impedes the adoption
of alternative policy instruments. The conceptual framework
developed here provides a structure that can be extended to
examine resource commitments and instrument choice. A more
thorough rejection of the influence of administrative institutions
on development policy will require examination of development
spending decisions and of the specific instruments and tools com-
munities adopt.
Form of government did not have a direct effect on develop-

ment activity, as is consistent with the work of Fleischmann,
Green, and Kwong (1992), but we found evidence that form of
government had an interactive effect that mediates the effect of
certain economic conditions and administrative arrangements on
development policy. Population and population changes had
greater policy influence under mayor-council government than
under council-manager government. Council-manager govern-
ment responded to poverty populations with developmental pro-
grams, and strategic plans were more effective in constraining
development activity under council-manager government.
Our findings also have implications for the role of strategic

planning in local government. The influences of strategic plan-
ning on development policy were evident in council-manager
cities, but not in mayor-council communities. Planning means
making commitments to take certain actions and not others. Such

commitments may be less credible in the context of high power

electoral incentives. Form of government also interacts with
certain economic forces to shape development policy. Because of
the limitations imposed by the ICMA survey data and the rela-
tively low explanatory power of our equations, we remain cir-
cumspect in the conclusions we draw. Nevertheless, the goodness
of fit is substantially better than results reported by others who
worked from the ICMA economic development surveys. Further
tests of the effects of administrative arrangements on develop-
ment choices based on the public-sector transaction cost frame-
work are certainly needed to fill this lacuna in the literature.

By examining economic development policies at two time
points we were able to identify the extent to which economic
demands and institutional structures shape economic development
policy. The inclusion of a lagged measure of development activ-
ity allowed us to make stronger inferences about how institutions
affect changes in local economic development strategies. This
analysis has brought new evidence to bear regarding the role of
government form on local economic policy. While theoretical
treatments of local governing structure emphasize the intervening
role of form of government, most contemporary analysis has
focused primarily on additive effects. We have drawn upon an
older urban politics literature for a design that tested our model
separately on mayor-council and council-manager cities. In doing
so, we have built upon a research foundation that urban scholars
forged over thirty years ago (Lineberry and Fowler 1967; Salis-
bury and Black 1963), and we have linked that work to contem-
porary public-sector transaction cost theory. In addition to pro-
viding a greater appreciation for the importance of institutional
structures for local governance, this framework has highlighted
the importance of the institutional tradition in urban research. We
will welcome and encourage additional work that builds on this
foundation.
APPENDIX
Population of
Geographic Cities over 1984 ICMA 1989 ICMA 1984-1989
Region 10,000 in 1989 Survey Sample Survey Sample Panel Sample
Northeast 27.7% 9.8% 19.2% 14.6%

North Central 28.7% 33.9% 32.2% 33.8%
South 26.0% 30.8% 27.2% 27.0%
West 17.9% 25.6% 21.4% 24.7%

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Form of Government,

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Recent theoretical work has applied transaction cost theories

291Journal of Public Administration Research and Theory

To what extent do government structure and the institutions

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This article extends this work by building on a transaction

30/J-PART, January 2001

TRANSACTION COSTS, ELECTORAL INCENTIVES,

Recent theoretical work has extended transaction cost theo-

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The potential for local leaders to overpromote development

To date little attention has been directed to the adminis-

31/ J-PART, January 2001

Administrators and development organizations can influence