Explaining the Reactions of Swiss Municipalities To

When politics does matter: Explaining the reactions of Swiss municipalities

to the “amalgamation wave”.

Stefano Calciolari, PhD

Assistant Professor in Health Care Management Faculty of Economics, Università della Svizzera italiana Via G. Buffi 13, CH 6904, Lugano, Switzerland e-mail: [email protected]

Daniela Cristofoli, PhD

Assistant Professor in Public Management Faculty of Economics, Università della Svizzera italiana Via G. Buffi 13, CH 6904, Lugano, Switzerland e-mail: [email protected]

Laura Maccio

PhD students in Public Management Faculty of Economics, Università della Svizzera italiana Via G. Buffi 13, CH 6904, Lugano, Switzerland e-mail: [email protected]

“When politics does matters: Explaining the reactions of Swiss

municipalities at amalgamation wave.

Introduction

Switzerland is a federalist country in the core of Europe. It is made up of 26 Cantons and approximately 2,500 municipalities. About 55% of the municipalities have less than 1,000 inhabitants and only eight municipalities have more than 500,000 inhabitants (Swiss Federal

Statistical Office, 2010). Swiss municipalities are very different from the social, cultural and political standpoints (Steiner 2000). However, each one is responsible for providing a wide range of public services, for instance: education during the compulsory time of schooling, social services, utilities and waste disposal, local police, granting of civil rights and internal organization of the civil authorities, etc.

During the 90s, the growing citizen demand for high quality services and the strict budget constraints of many municipalities (Ladner and Steiner 1998) raised a political debate on how to ensure effective and efficient fulfilment of municipal tasks. In this debate, amalgamation emerged as a “panacea” to handle the financial distress faced by many Swiss municipalities and often considered due to their small size (Dafflon 2001; Ladner 2001; Soguel 2001). As a consequence, 21 Cantons issued reform laws (Ladner et al. 2000) to promote inter-municipal collaboration and amalgamation.

The phenomenon gradually gained momentum, and 263 amalgamations occurred in the period 1960-2009 (Swiss Federal Statistical Office, 2010). As a consequence, the number of 2

Swiss municipalities decreased by about 15% (from 3,095 to 2,636) in almost fifty years, after about a century of stability.

Canton Ticino’s amalgamation policy was one of the most proactive in the Confederation in the last decade. At the end of the 90s, a cantonal law was issued encouraging municipal amalgamations. However, despite the economic and the institutional pressures towards amalgamation, 15% municipalities refused amalgamation and the 47% showed indifference.

Both the strength and direction of the environmental pressure and the strategic nature of such a change raise the question: how can we explain the different behaviours of Swiss municipalities?

Drawing from the New Institutional literature, we assumed the Oliver’s (1991) model as theoretical framework useful to look for answers.

The empirical setting of our analysis consisted of the municipalities in Canton Ticino. We considered 245 municipalities existing in 2000 and focused on their behaviour during the period 2000-2009.

Results show that economic and institutional pressures alone are not sufficient to convince municipalities to merge. The political trigger is an important driver of such a strategic decision. On one side, our analysis contributes to better explain the success or failure of managerial reforms in the public sector; on the other side, it provides public managers and policy-makers with useful suggestions about how to make managerial reforms succeed.

The paper is organized into three parts. The first part (next two sections) reviews the extant literature on municipal amalgamation, presents the theoretical framework and formulates our hypotheses (third section); the second part explains the study methods and the third part (last two sections) presents and discusses results.

Reasons for municipal amalgamation: in search of economy

Municipal amalgamation is a quite common phenomenon, above all due to the small size of many municipalities all over the world. More or less every Western and Northern European country reduced the number of municipalities in the last fifty years. Nordic countries (Nelson

1992) and the United Kingdom (Goldsmith 1996) engaged in aggressive policies toward municipal amalgamation, leading to eliminate more than three fourths of their municipalities.

Amalgamations also occurred in France and Switzerland (Steiner 2000; Soguel 2001), in East

European countries such as Bulgaria and Romania (Hajnal 2001; Swianiewicz 2006; Borecky and Prudky 2008), in the United States and in Canada (Miranda and Lerner 1995, Sancton

1996; Kushner and Siegel 2005).

Despite the diffusion of the phenomenon, municipal amalgamation remains a rarely investigated topic in the academic literature. In addition, the extant studies focused mainly on mergers’ desired consequences for both the involved municipalities and their citizens, rather than on the reasons behind the decision to join or avoid amalgamation.

From the municipalities’ standpoint, one of the more frequently quoted reason in favour of municipal amalgamation is represented by the opportunity to exploit scale and scope economies. The increase of the small size of many municipalities – with the consequential scale and/or scope economies – is in fact often associated with the opportunity to provide services at lower costs or deliver higher quality services at the same cost (Nelson 1992;

Sancton 1996). Another reason deal with the fact that larger municipalities can provide citizens with a wider range of services (McKay 2004). In fact, empirical studies showed that municipalities below 3–5,000 inhabitants cannot perform well in managing important public responsibilities, thus making the service provision inefficient and hardly effective (Dowding et al. 1994; Keating 1995; Sharpe 1995; Boyne 2003; Baldersheim and Rose 2010).

Another argument in favour of amalgamation deals with its benefits in terms of equity.

According to Swianiewicz (2006), countries with large municipalities know fewer income differences between municipalities, thus resulting in a lower level of social tensions. In addition, Swianiewicz (2006) argues that amalgamations tend to reduce the problem of free- riding, as large municipalities have lower incongruity between administrative boundaries and catchment areas of services.

From the citizens’ standpoint, political participation, the wish to protect local democracy and local identities are often quoted as reasons against amalgamation (McKay 2004).

According to this perspective, municipal separation does provide citizens with a better representation of their interests and lower political conflicts.

On the basis of the aforementioned considerations, it looks manifest that strong economic reasons prevail behind municipal amalgamations (they are often promoted to support efficiency or functional capacity of local governments), whereas social and political considerations normally oppose to their implementation.

Municipal amalgamation in Switzerland: reforms and institutional pressure

Swiss municipalities have low geographical extension and population density: on average, they have 15,9 square kilometres and 2,843 inhabitants, with 44% of the Swiss population living in just 5% of all municipalities (Swiss Federal Statistical Office 2010). Cantons have

100 municipalities on average, with the minimum of three municipalities in Canton Basel-

Stadt and a maximum of 388 municipalities in Canton Bern. Corippo – in Canton Ticino – is the smallest municipality (18 inhabitants) and Zurich – in Canton Zurich – the largest one

(365,132 inhabitants).

This situation resulted from a long-lasting amalgamation process started in the mid of the

XIX century and that knew a peak during the ‘90s, due to structural economic weaknesses of

5 many municipalities: in particular, amalgamations have been promoted and implemented by those Cantons with small and weekly performing municipalities (Steiner 2000). Today about

85% of Swiss Cantons have discussed or implemented municipal amalgamations (Steiner and

Kaiser 2010), resulting in a significant reduction of the number of Swiss municipalities over time: from 3,203 municipalities in 1850 to 3,021 in 1990 and 2,596 in 2010.

At the beginning of the 90s, Canton Ticino had 247 municipalities with 2,300 inhabitants on average1 and small municipalities often facing situations of financial hardship

(Dipartimento delle istituzioni, Sezione degli enti locali 1998; Steiner 2000).

In this situation, amalgamations were promoted as one of the three pillars of the municipality reform law (LOC, 1987). The three pillars of the cantonal reform were: i) dimensional adjustment of municipalities through aggregations; ii) changes in the distribution of competences and financial flows between municipalities and Canton; iii) new rules and procedures to improve decision-making and optimize public service delivery. According to the Cantonal strategy (Dipartimento delle istituzioni, Sezione degli enti locali, 1998), municipal amalgamations should have ensured economies of scale, as municipalities with less than 200 inhabitants had higher per capita expenses than municipalities with more than 6,000 inhabitants.

The diffusion of the amalgamation process led to a significant reduction in the number of municipalities over time: 245 in 2000, 199 in 2005, and 169 municipalities in 2009 (see

Figure 1). From 2000 to 2009, 22 amalgamations involved 94 municipalities and 125,387 inhabitants. However, as already mentioned, municipalities that complied with the reform law represented only 38%; while the remaining 62% did not react at all (47%) or manifestly refused (15%) amalgamation projects.

1 About 40% of the population lived in 12 municipalities. 6

Why? How can we explain the behaviour of Canton Ticino municipalities facing economic and institutional pressures towards amalgamation? In order to look for an explanation of the Swiss case, in the following we adopt Oliver’s (1991) model as theoretical framework to formulate verifiable hypotheses.

------Insert Figure 1 about here ------

Theoretical framework

In her work “Strategic responses to institutional pressures” published on the Academy of

Management Review in 1991, Oliver argued that organizations strategically react to the pressures from their institutional and techno-economic environment. In particular, an organization’s reaction results from the weighting of expected benefits associated with, on one hand, the conformance and, on the other hand, the non-conformance (Oliver 1991).

Conformance may lead to benefits in terms of legitimacy and efficiency, while non- conformance to environmental pressures may be beneficial in terms of easier achievement of an organization’s specific objectives (Oliver 1991; Judge and Zeithaml, 1992; Goodstein

1994; Ingram and Simons 1995; Goodrick and Salancik 1996).

According to this approach, Oliver identified five types of organization responses to institutional pressures. Reactions range from total conformance to various forms of resistance such as defiance and avoidance. She also suggested five predictors of those behaviours: cause, constituents, content, control, context.

The first predictor (cause in Oliver parlance) refers to the expected benefits of conformity in terms of legitimacy or efficiency. According to Oliver (1991), institutional pressure toward change can aim either to make organizations more socially accepted (thus enhancing their legitimacy) or to raise their economic accountability (thus enhancing their efficiency).

Consequently, as legitimacy and efficiency are important requirements for survival,

7 organizations are more likely to accommodate for institutional pressure if they anticipate such benefits from conformance. However, organizations do not equally aim at enhancing their legitimacy or efficiency: many authors argue that public organizations, in particular, are differently interested in these benefits according to their size and their contingent financial situation (Goodstein, 1994; Bigelow and Middleton 1995; Brudney and Selden 1995; Brudney et al., 1999; Kearney et al, 2000).

The second predictor refers to the influence of key stakeholders (or constituents).

Institutional pressures influence the behaviour of multiple actors (often with conflicting interests) who can influence organizations’ decisions according to the relevance of the resources under their control (Pfeffer and Salancik 1978). Accordingly, Oliver (1991) argues that the presence of multiple and powerful stakeholders negatively influence organizations’ orientation toward conformance.

The third predictor concerns the coherence between reform’s principles and aims, and organization’s objectives and resources (this factor is labelled content by Oliver). The content of institutional pressures can interfere with an organization’ objectives, thus forcing it to deploy resources and competences in contrast with its autonomous strategic orientation.

Therefore, organizations are likely to conform to institutional pressures when their own objectives and resources are aligned with the reform’s principles and aims (Covaleski and

Dirsmith 1988; Goodstein 1994; Ingram and Simon 1995).

The fourth predictor refers to the enforcement mechanisms through which institutional pressure is exerted (control in Oliver parlance). Two types of mechanisms might realize enforcement: (i) legal coercion – exerted on the basis of legitimate authority – and (ii) voluntary diffusion – realized by voluntary compliance or by mimetic isomorphic behaviour

(Frumkin and Galaskiewicz 2004). However, as public organizations operate in an institutional environment that makes them equally subject to legal coercion, voluntary

8 diffusion seems to be the only significant control mechanism able to affect their behavior. In fact, Knoke (1982) argued that the best way for predicting municipalities’ conformance to reforms is to see whether other municipalities have already adopted them. One possible explanation of Knoke’s argument is that public sector organizations operate in organizational fields with high conformance level; therefore, any organization opposing institutional pressure would suffer damage to its reputation and legitimacy (Galaskiewicz and Wasserman

1989).

Finally, Oliver (1991) argues that certain contextual factors (context in Oliver parlance) influence organization’s response to institutional pressure. Organizations operate within environments characterized by uncertainty and interconnection. In this perspective, on one hand, conformance to institutional pressure is a means to reduce environmental uncertainty, on the other hand, environmental interconnection fosters information circulation and encourages compliance.

Hypotheses

In this section we adapt Oliver’s model to the specificities of public sector organizations highlighted in the public management literature (Allison 1993; Perry 1988; Nutt and Backoff

1993; Moore 1995). In this way we aim to test its explanatory power on the reactions of

Canton Ticino municipalities to the aforementioned reform. More specifically, Pollit and

Bouckaert (2000) argue that public sector organizations operate simultaneously under three types of environmental pressure: institutional, economic, and political pressure. The institutional pressure deals with the respect of formal rules and the conformance to social expectations; the economic pressure deals with the efficient and sustainable use of resources; finally, the political pressure belongs to the necessity of gaining citizens’ consensus and defending established interests. Each type of pressure respectively belongs to a specific system: law and tradition, market, and politics. Pollit and Bouckaert (2000) talk about

“interactive” environments, thus suggesting potential interactions between the different pressures.

Accordingly, we first group Oliver’s predictors into the three aforementioned categories.

Secondly, we formulate hypotheses aimed to test the influence of each type of three pressures as well as the influence of their interaction on municipalities’ strategic behaviours.

The first set of drivers relates to the institutional pressure. In this perspective, conformance with the reform is expected to generate benefits in terms of legitimacy, and social control mechanisms lead municipalities to comply (Galaskiewicz and Wasserman

1989). In the case of Swiss municipalities, compliance with the reform has a symbolic value, representing an high-visibility attempt to go beyond the inefficiencies of the municipalities’ small size and ensure high quality services for citizens, whereas a deviation from the average level of conformance of their close municipalities risks to undermine municipalities’ reputation and legitimacy. On these grounds, we expect that institutional pressure leads Swiss municipalities towards amalgamation.

Hypothesis 1. The higher the institutional pressure, the more likely Swiss

municipalities are prone to merge

The second set of drivers relates to the economic pressure. Municipalities are more prone to implement a reform if they envisage benefits in terms of efficiency gains associated with their conformance, and if their goals and resources (in terms of competences or skills) are consistent with the requirements of the reform implementation (Covaleski and Dirsmith 1988; Goodstein 1994; Ingram and Simon

1995). Consequently, as municipal amalgamation should increase the economies of scale and the city efficiency (Husock 2001; Mckay 2004), Swiss municipalities with financial difficulties should be in favour of (or, at least, less resistant to) the reform.

However, as amalgamation requires administrative, managerial and cultural readiness,

10 municipalities whose personnel developed more managerial competences and orientation will be more likely to merge. Accordingly, we expect a positive influence of the economic drivers on Swiss municipalities’ propensity to merge.

Hypothesis 2. The higher the economic pressure, the more likely Swiss

municipalities are prone to merge

Finally, the third set of drivers relates to the consensus accrued among key stakeholders; in other words, it deals with the political pressure. Two categories of stakeholders are strongly affected by the municipal amalgamations: politicians elected in the City Council, and citizens used to actively participate in the political life of their community. On the one side, amalgamation leads to a reduction in the number of politicians in the City Council, thus affecting their self-interest (Sorensen 2006). On the other side, it contributes to increase the distance between citizens and the representative bodies, thus causing in many citizens fear of loosing the identity of their own village (Sancton 1996, Nelson 1992, Oakerson 1987).

Accordingly, we expect that the political driver negatively affects the propensity of Swiss municipalities to merge.

Hypothesis 3. The higher the political pressure, the less likely Swiss

municipalities are prone to merge

As previously discussed, public organizations operate in institutional, economic and the political environments that reciprocally interact (Pollit and Bouckaert 2000).

Therefore, we expect that the interactions between drivers associated with different environments additionally influence the behavior of municipalities. As a consequence, we argue that to better explain the propensity of the Swiss municipalities to merge, we must consider the simultaneous influence of pairs of the aforementioned drivers.

Hypothesis 4. The coexistence of institutional and economic drivers has a

significant influence on the behavior of the Swiss municipalities beyond the

separate effect of each single driver.

Hypothesis 5. The coexistence of institutional and political drivers has a

significant influence on the behavior of the Swiss municipalities beyond the main

effect of each single driver.

Hypothesis 6. The coexistence of economic and political drivers has a significant

influence on the behavior of the Swiss municipalities beyond the separate effect of

each single driver.

Data and methods

The model specification sets the behavior of the Swiss municipalities in front of the amalgamation reform wave as the outcome variable (Y): it can assume three values (rejection: m=1; indifference: m=2; acceptance: m=3) without any specific order ranking. Therefore, the multinomial logit model, working with categorical variable and considering only differences between options without assuming any order among values, resulted an appropriate statistical modeling approach. The selected base category is refusal of amalgamation (m=1).

Data for our study were retrieved from different databases: i) database of Canton Ticino

Statistical Office (1999-2008) for demographic and financial data; ii) database of Canton

Ticino Public Election Office (1999-2008) for participation and city representatives data; iii) database of the Education Department of Canton Ticino for data on civil servants’ managerial training; iv) database of Canton Ticino Municipalities Office (2000-2009) for data on amalgamations.

The population of our study is represented by the 245 municipalities existing in Canton

Ticino in 2000, according to the Municipalities Office database. More specifically, we

12 focused on the 245 municipalities’ behaviors in response to the amalgamation wave across the decade 2000-2009. Some municipalities performed a merger, others manifestly refused to perform an amalgamation by means of a referendum, and a third group did not do anything, thus showing indifference toward environmental pressures.

As far as municipalities that accepted/refused to merge are concerned, we collected independent variables referring to the year before the formal decision, thus grasping the effect of the factors leading to the outcome. As far as municipalities that did not explicitly react are regarded, we collected data on independent variables referring to 2008 in order to capture the factors that are preventing municipalities from assuming an active position until the last year considered.

Results will be reported in odds ratios terms, estimated with the multinomial logit model.

In our case, an odd ( m|n ) is the ratio between the probability of observing m (i.e., outcome 2,

or 3) over the likelihood of observing n (i.e., the base category 1) for a given xk . The factor

change in the odds of outcome m versus outcome n as the independent variable xk increases by one unit equals

 x, x 1 m|n  k  k ,m|n  e m|n x, xk and can be interpreted as follows: holding all other variables equal to their average, for a

 k ,m|n unit change in xk the odds of m versus n are expected to change by a factor of e .

Variables measurement

Dependent variable. We used the information about the results of amalgamation processes in Canton Ticino in order to measure the municipalities’ response to the amalgamation wave during the period 2000-2009. The law promoted mergers among Canton Ticino municipalities in order to address issues related to their small size, such as diseconomies in the service

13 provision. About 53% of the municipalities were formally involved in amalgamation projects, and almost 72% of them finally accepted to merge with a positive outcome of the referendum.

Following Oliver (1991) we classified the behavior of the Swiss municipalities as, respectively, conformity, indifference and resistance: indifference identifies those municipalities who were not involved in amalgamation projects at all. According to this classification, we created a categorical variable with three values reflecting the aforementioned reactions (rejection =1; indifference =2; acceptance =3).

Independent variables. The factors able to affect the response of Swiss municipalities were grouped in three categories: institutional, economic and political drivers.

Institutional factors. We included two drivers of Oliver’s (1991) framework in this category: expected benefits in terms of legitimacy (cause) and enforcement mechanisms in terms of social control (control). Following the studies of Goodstein (1994) and Ingram and

Simons (1995), we used the number of inhabitants in each municipality as a measure for the expected advantages in terms of legitimacy: the assumption is that large local governments are expected to pave the way to institutional innovation. As a proxy of the social control mechanism influencing diffusion, following Goodstein (1994) and Ingram and Simon (1995), we used the proportion of municipalities within the organizational field that did merge. In our study, the organizational field is the official region of Canton Ticino2 where municipalities operate. In this way, we considered the percentage of municipalities complying with the amalgamation wave within each cantonal region as a measure of the isomorphic pressure on each municipality.

Economic factors. We included two predictors of Oliver’s (1991) framework in this category: expected benefits in terms of efficiency (cause), and the goal and resource

2 In 2009, Canton Ticino was made up 169 Municipalities (with on average 1,963 inhabitants) arranged in eight districts (Ticino in cifre, USTAT 2010). Districts do not have administrative functions in Ticino, but they aggregate locally political parties – especially for the election of representatives in the Cantonal Parliament – and have a cultural value for the local identity. 14 coherence (content). First, we used the municipality’s financial distress – i.e., the municipality self-financing capacity3 with the opposite sign – as a measure of the expected advantages in terms of efficiency. Second, as the amalgamation process call for specific managerial competences and skills, we expect that municipalities that invested in the executive training of their civil servants are more prone to comply with a reform grounded on strong economic reasons. Accordingly, as a measure of the availability of managerial resources in each municipality, we used the proportion of civil servants – over the total number of the municipal employees – attending managerial courses in the time span before the strategic reaction.

Political factors. As previously explained, we identified two categories of significant stakeholders: politicians elected in the each local government Council and citizens. We used the number of elected commissioners4 to appreciate their power to oppose at the amalgamation wave and the proportion of citizens participating in local election as a measure of their civic culture and consciousness.

Interaction effect. We account for interactions between the three aforementioned categories of covariates by allowing for statistical interactions between pairs of drivers.

Statistical interaction exists when the effects of two or more explanatory variables are not only additive, but “the differing effect of one independent variable on the dependent variable depends on the level of another independent variable” (Cozby 1997: 314). In this perspective, according to the traditional approach for interaction between continuous variables in a regression model (Fürst and Ghisletta 2009), we followed a two-step procedure to build independent variables expressing both the main effect of each pressure and the joint effects of institutional, economic and political pressures. Technically, we first centered all the

3 The «capacità di autofinanziamento» is the ratio of two measures: (a) the difference between revenues and expenditures excluding assets depreciation; (b) the amount of revenues. It is an indicator of the municipality’s relative capacity to face new investments by means of its own financial resources. 4 The term here refers those, among the Council members (or councilors) appointed as members of the executive branch of the local government (i.e., deputy majors in the U.S. spelling). 15 independent variables around their respective means to create the main effect terms; secondly, we multiplied together pairs of the new centered variables (with each variable belonging to a different type of pressure) to create the interaction effect terms. This approach contrasts collinearity issues (the mean variance inflation factor of our model is lower than 10) and facilitates interpretation. We finally obtained six main effect terms and 12 (i.e., 6 times 2) interactions terms.

Results

Table 1 and 2 show the descriptive statistics for the dependent and independent variables.

On average, about 38% municipalities within the organizational field did merge, but the proportion reaches its maximum (about 52%) for municipalities that concluded amalgamation.

As far as institutional factors are concerned, the 94 municipalities that merged have the lowest average population (1,333 inhabitants), compared to the average 1,520 and 1,572 inhabitants, respectively, for the group indifferent to amalgamation and the 36 municipalities that rejected the merger process. The isomorphic effect is highest in the cases of acceptance

(51.7%).

As far as the economic drivers are regarded, municipalities showing indifference toward the reform are in better shapes, in terms of financial distress (-10.6%), compared to both those who rejected and accepted an amalgamation process (respectively: -7.8% and -6.7%). They are also characterized by the highest average participation of civil servants in managerial training activities (1.4).

As political drivers are concerned, municipalities that concluded amalgamation had the highest average electoral participation (72.6%), while those rejecting mergers had the lowest one (65.4%). The highest average number of commissioners was for the cases of indifference

(5.2), while it was the lowest (4.7) for those complying with the amalgamation wave.

------Insert Table 1 about here ------Insert Table 2 about here ------

Table 3 shows the correlation matrix of the independent variables used in our model. The municipality size and the number of municipal commissioners show an obvious positive and significant correlation: legally, there are less than three representatives only in municipalities with less than 100 inhabitants, while there are more than four commissioners in municipalities with more than 550 inhabitants. Municipality size is also positively (and significantly) correlated with the availability of managerial competencies to tackle administrative complexity.

------Insert Table 3 about here ------

As far as the logit model is concerned, the 2-statistic indicates that the overall model is statistically significant, and the Likelihood Ratio test does not allow for rejecting the hypothesis that the effects of all the independent variables on the municipalities’ strategic behavior are simultaneously zero at the 99% confidence level. The pseudo R2 equals 27.4%.

In general, by comparing the decision to merge (m=3) with the decision of rejecting amalgamation (m=1), our data confirm hypotheses 1 and 2; whereas hypothesis 3 is only partially confirmed by results.

More specifically, hypothesis 1 predicts that institutional factors lead municipalities to merge. According to our estimates, the higher the proportion of merged municipalities in the same geographical region (i.e., isomorphic pressure), the more likely municipalities will amalgamate (p=0. 000). In particular, according to the odds ratio of the outcome “acceptance”

(Table 4), if the proportion of municipalities already merged in the same geographic region

17 increases by one percentage point, the odds of the municipality to accept amalgamation increase by a factor of about 1.07 (compared to the odds of the municipality to reject the change), holding everything else equal.

Hypothesis 2 predicts that economic pressure leads to merger. According to our estimates, the higher the financial distress, the higher the propensity to merge instead of reject amalgamation (p=0.042). In particular, an increase of one percentage point in the situation of financial distress is associated with an odds-ratio – acceptance vs. refusal – equal to 1.09.

Our data only partially confirm hypothesis 3. The political pressure tends to significantly

(p=0.001) influence the municipality propensity to merge, as opposed to reject amalgamation.

Contrary to our expectations, the higher the citizen political participation, the higher the municipality propensity to merge instead of rejecting amalgamation. In particular, if citizen’s participation to local election increases by one percentage point, the odds of the municipality to accept amalgamation increase by a factor of about 1.14 compared to the odds of the municipality to reject the merger.

As far as the interaction effects are considered, results weakly confirm hypothesis 4 and 5, when the option to merge is considered against the rejection alternative. As expected, there is a significant interaction effect of the institutional and political factors (p=0.015) on the decision to merge respect to that of rejecting the amalgamation. More specifically, municipalities with a number of inhabitants above the average and where the citizen participation in local politics is above the average, have a higher propensity to merge (as opposed to refusing amalgamation). Similarly, results show that there is a jointly and positive effect of the municipality size and financial distress on the propensity to merge (p=0.043), as opposed to rejecting amalgamation. Nevertheless, in both cases the odds ratio is close to 1, thus suggesting a statistically significant, but practically negligible effect of the institutional- political and institutional-economic factors on the municipality behavior. Finally, results do

18 not show significant joint effect of the economic and political forces on the municipality decision to merge, thus not confirming hypothesis 6.

The study offers less interesting insights to understand why some municipalities prefer remaining indifferent in front of the reform, rather than considering to start an amalgamation process. None of the main effects of the institutional, political or economic factors have, in fact, a statistically significant influence on the odds of an indifferent behavior, compared to rejection of amalgamation. Only the interaction effect of the institutional-political pressure has a significant influence on the strategic option of indifference compared to refusal of change. In this case, the odds of the municipality to maintain a position of indifference decrease, in fact, by a factor of 0.97 compared to the odds of the municipality to reject the change. In other words, municipalities are more prone to reject amalgamation than to show indifference if they operate in districts where an above-the-average number of mergers did occur and the number of commissioners is above the cantonal average.

------Insert Table 4 about here ------

Discussion and conclusion

Our results offer interesting insights to explain the strategic behavior of Swiss municipalities facing the amalgamation wave. These insights also allow us to formulate some general considerations about the behavior of public sector organizations in front of managerial and efficiency-oriented reforms.

First, as expected, the decision of Swiss municipalities to merge can be explained in terms of institutional, economic and political factors. In fact, despite amalgamations were formally designed by law as a solution for municipalities struggling with economic sustainability, their actual reactions do not simply follow institutional and economic pressures. Rather, political

19 factors exert a significant influence on municipalities’ strategic behavior. In addition, interactions between the aforementioned pressures do influence strategic reactions.

If one takes rejection as reference strategic behavior, municipalities look more prone to merge when they operate in geographic region where an above-the-average proportion of organizations already merged, when they face a situation of financial distress, but also when their populations show high civic consciousness. In addition, when the number of municipal commissioners and the isomorphic pressure are simultaneously above the cantonal average, holding everything else equal, the interaction effect tends to reduce the likelihood of amalgamation as opposed to rejection.

On the basis of these considerations, the political pressure seems to be a key factor influencing the Swiss municipalities’ behavior. It does contribute to explain both the acceptance of merging and the indifferent position toward the amalgamation wave.

In particular, whereas citizens seem to support amalgamations, contrary to what we and the existent studies predict (Sancton 1996), thus showing a high level of civic consciousness, politicians seem to act against the municipal mergers, thus rather defending local identities. In particular, when the number of municipal commissioners and the isomorphic pressure are simultaneously above the cantonal average, holding everything else equal, the interaction effect tends to reduce the likelihood of indifference as opposed to explicit rejection. In addition, the interaction between political and institutional pressure seems to be the only factor consistently contributing to rise the probability of rejecting the change as opposed to assuming either an indifferent or a complying position toward the reform. In other words, the coexistence of an above-the-average political stake to preserve the status quo (i.e., high number of commissioners) in an environment with an above-the-average isomorphic pressure finally results in reducing the likelihood of change.

These last aspects can be qualitatively explained by taking into account the specificities of

Switzerland in terms of civic culture and political arrangements. As Ritz and Sager (2010:

121) argue, “in Switzerland, political decisions are not only the business of political representatives, but also of the sovereign people themselves”. Switzerland is, in fact, characterize by a strong form of direct democracy, as citizen participation in political life is not mainly expressed in voting. Citizens are frequently called to express their view on tens of different matters every year through the channel of referendum. That has contributed to foster, over the years, the development of a highly conscious population, sensitive towards the problem of the res publica and open to support changes aimed to improve their well-being.

Secondly and in more general terms, our results suggest that the behaviour of public sector organizations facing economic and managerial-oriented reforms should be explained in terms of institutional, economic and political pressures and their reciprocal interactions.

Therefore, in order to have managerial-oriented reforms succeed, it is not enough to issue reform laws or to shed light on their economic rationales. It is also necessary to take the political leadership of the reform implementation and the responsibility of its success. More specifically, the Swiss case does seem to suggest the need of gaining the support of citizens on the one side, and of local politicians, on the other side, as these factors are both influential per se on local strategic behaviours and they interact with institutional and economic drivers.

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Figure 1 – Number of municipalities in Canton Ticino (2000-2009)

Table 1 – Descriptive Statistics for the independent and dependent variables

NMeanStd. Dev. Min Max Independent Variables ‐ centered* Expected Legitimacy 245 0.00 3,751.03 ‐1,438.45 49,146.55 Isomorphic effect 245 0.00 22.67 ‐38.37 43.99 Ci ty Council 245 0.00 1.45 ‐4.99 2.01 Ci ti zen Participation 245 0.00 9.14 ‐20.48 26.70 Ma na gerial Compentences 245 0.00 1.64 ‐0.77 16.23 Financial Distress 245 0.00 16.13 ‐59.90 132.96 Interaction Variables ExpLeg_CityCouncil 245 1,867.27 7,175.40 ‐2,780.19 98,694.30 ExpLeg_CitParticipation 245 ‐7,922.22 50,395.57 ‐693,054.40 123,604.10 Is o_Ci tyCounci l 245 ‐3.45 39.80 ‐219.57 96.44 Iso_CitParticipation 245 23.40 197.84 ‐894.75 921.99 ExpLeg_ManComp 245 4,205.66 39,023.56 ‐4,695.82 552,046.20 ExpLeg_FinDistress 245 31.02 230.82 ‐1,794.87 1,859.38 Iso_ManComp 245 ‐4.65 37.11 ‐451.93 67.54 Iso_FinDistress 245 20.94 339.71 ‐2,330.35 2,414.25 CityCouncil_ManComp 245 0.75 2.97 ‐1.54 32.60 Ci tyCounci l _Fi nDi s tres s 245 ‐6.49 30.56 ‐273.99 63.23 CitParticipation_ManComp 245 ‐2.28 18.12 ‐180.21 26.12 CitParticipation_FinDistress 245 ‐11.87 128.29 ‐928.31 709.75 Original Independent Variables Expected Legitimacy 245 1,456.45 3,751.03 18.00 50,603.00 Isomorphic effect 245 38.37 22.67 0.00 82.35 Ci ty Council 245 4.99 1.45 0.00 7.00 Ci ti zen Participation 245 69.10 9.14 48.62 95.80 Ma na gerial Compentences 245 0.77 1.64 0.00 17.00 Financial Distress 245 ‐8.68 16.13 ‐68.58 124.28

Dep. Variable N Acceptance Indifference Rejection Acceptance rate Strategic reaction 245 94 115 36 0.38

* Variables centered around the mean

Table 2 – Descriptive statistics for independent original variables by strategic reaction

Obs Mean Std. Dev. Min Max Rejection Expected Legitimacy 36 1,572.19 2,878.23 18.00 15,204.00 Isomorphic effect 36 28.94 14.80 10.53 59.26 Ci ty Council 36 4.94 1.60 0.00 7.00 Ci ti zen Participation 36 65.41 9.95 51.78 87.50 Managerial Compentences 36 0.61 0.84 0.00 3.00 Financial Distress 36 ‐7.79 11.44 ‐40.43 21.51 Indifference Expected Legitimacy 115 1,520.37 2,142.18 27.00 17,432.00 Isomorphic effect 115 30.41 19.04 0.00 82.35 Ci ty Council 115 5.23 1.30 3.00 7.00 Ci ti zen Participation 115 67.40 7.60 48.62 89.00 Managerial Compentences 115 1.04 1.94 0.00 17.00 Financial Distress 115 ‐10.61 18.59 ‐68.58 124.28 Acceptance Expected Legitimacy 94 1,333.90 5,305.39 27.00 50,603.00 Isomorphic effect 94 51.71 23.01 10.53 82.35 Ci ty Council 94 4.71 1.54 0.00 7.00 Ci ti zen Participation 94 72.60 9.49 53.60 95.80 Managerial Compentences 94 0.49 1.42 0.00 12.00 Financial Distress 94 ‐6.67 14.15 ‐36.78 46.20

Note: All the variables are centered around the mean

Table 3 – Correlation among the independent variable

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 1 Expected Legitimacy 1 2 Ci ty Council 0.34 1 3 Ci ti zen Participation ‐0.23 ‐0.19 1 4 Managerial Compentences 0.69 0.32 ‐0.15 1 5 Isomorphic effect ‐0.10 ‐0.11 0.11 ‐0.13 1 6 Financial Distress ‐0.05 ‐0.28 ‐0.08 ‐0.06 0.06 1 7 ExpLeg_CityCouncil 0.95 0.09 ‐0.19 0.63 ‐0.05 0.06 1 8 ExpLeg_CitParticipation ‐0.91 ‐0.17 0.12 ‐0.60 0.04 0.01 ‐0.91 1 9 Is o_Ci tyCounci l ‐0.05 0.26 ‐0.06 ‐0.03 ‐0.25 ‐0.08 ‐0.14 0.08 1 10 Iso_CitParticipation 0.06 ‐0.08 ‐0.02 0.09 0.23 ‐0.03 0.10 ‐0.06 ‐0.23 1 11 ExpLeg_ManComp 0.90 0.13 ‐0.14 0.70 ‐0.04 0.02 0.92 ‐0.90 ‐0.05 0.05 1 12 ExpLeg_FinDistress 0.45 0.21 0.03 0.27 ‐0.02 ‐0.73 0.39 ‐0.47 0.09 ‐0.02 0.48 1 13 Iso_ManComp ‐0.28 ‐0.04 0.08 ‐0.60 ‐0.06 ‐0.02 ‐0.31 0.25 0.33 ‐0.17 ‐0.39 ‐0.02 1 14 Iso_FinDistress ‐0.01 ‐0.10 ‐0.03 ‐0.02 0.03 0.14 0.02 0.00 ‐0.33 ‐0.22 ‐0.01 ‐0.07 ‐0.07 1 15 Ci tyCounci l _Ma nComp 0.66 0.04 ‐0.14 0.85 ‐0.03 0.06 0.72 ‐0.62 ‐0.18 0.16 0.76 0.20 ‐0.66 0.05 1 16 CityCouncil_FinDistress 0.06 0.26 0.03 0.06 ‐0.07 ‐0.69 ‐0.04 ‐0.05 0.24 ‐0.06 0.03 0.71 0.03 ‐0.20 ‐0.07 1 17 CitParticipation_ManComp ‐0.73 ‐0.15 0.02 ‐0.77 0.07 0.01 ‐0.73 0.73 0.15 ‐0.09 ‐0.80 ‐0.32 0.65 0.00 ‐0.84 ‐0.04 1 18 CitParticipation_FinDistress 0.01 0.05 ‐0.16 0.02 ‐0.03 0.01 0.00 ‐0.01 ‐0.10 ‐0.06 ‐0.02 0.04 ‐0.03 0.39 0.01 ‐0.04 ‐0.03 1

Table 4 – Results of the multinomial regression

Outcome variable Variables m = 2 m = 3 Coef. S.E. p‐value O.R. Coef. S.E. p‐value O.R. I Expected Legitimacy ‐0.0001 0.0004 0.774 0.9999 0.0002 0.0004 0.597 1.000 Isomorphic effect 0.0139 0.0164 0.396 1.0140 0.0638 0.0173 0.000 1.066 City Council ‐0.0862 0.2580 0.738 0.9174 ‐0.0429 0.2829 0.879 0.958 Citizen Participation 0.0125 0.0341 0.713 1.0126 0.1284 0.0403 0.001 1.137 Managerial Compentences 0.4078 0.3400 0.230 1.5034 ‐0.3906 0.4026 0.332 0.677 Financial Distress ‐0.0484 0.0314 0.124 0.9528 0.0942 0.0464 0.042 1.099 ExpLeg_CityCouncil 0.0001 0.0002 0.534 1.0001 0.0002 0.0002 0.354 1.000 ExpLeg_CitParticipation 0.0000 0.0000 0.369 1.0000 0.0001 0.0000 0.015 1.000 Iso_CityCouncil ‐0.0306 0.0130 0.018 0.9698 ‐0.0246 0.0132 0.063 0.976 Iso_CitParticipation ‐0.0023 0.0016 0.136 0.9977 ‐0.0014 0.0016 0.382 0.999 ExpLeg_ManComp 0.0000 0.0000 0.564 1.0000 0.0000 0.0000 0.287 1.000 ExpLeg_FinDistress 0.0000 0.0000 0.501 1.0021 0.0001 0.0000 0.043 1.000 Iso_ManComp 0.0027 0.0142 0.851 1.0027 0.0060 0.0158 0.705 1.006 Iso_FinDistress 0.0002 0.0012 0.885 1.0002 0.0004 0.0013 0.733 1.000 CityCouncil_ManComp ‐0.0639 0.2337 0.785 0.9381 ‐0.0025 0.2731 0.993 0.998 CityCouncil_FinDistress ‐0.0182 0.0170 0.283 0.9820 ‐0.0144 0.0180 0.425 0.986 CitParticipation_ManComp 0.0072 0.0310 0.815 1.0073 ‐0.0406 0.0388 0.296 0.960 CitParticipation_FinDistress 0.0005 0.0020 0.807 1.0005 0.0003 0.0022 0.881 1.000 __constant 1.3116 0.4023 0.001 1.3257 0.4254 0.002

Log likelihood ‐178.688 LR 2(6) 134.75 Prob. > 2 0.000