ACCOUNTABILITY AND INCENTIVES OF APPOINTED AND ELECTED PUBLIC OFFICIALS Zohal Hessami* Abstract—Political agency models suggest that elected public officials of government exist: the council-manager system (the man- choose different policies than appointed officials do. This paper is the first (a) to apply a clean empirical design to study whether the selection rule has ager is appointed by the city council) and the mayor-council a causal effect on public officials’ policy choices and (b) to investigate trans- system (the mayor is elected by voters).2 The majority of mission channels. I exploit a unique setting in Germany, where a reform has these studies use municipal spending in one or two U.S. created quasi-experimental variation in the selection rule for mayors. As the outcome variable, I use data on grant receipts for highly visible investment states as the outcome variable. The results are mixed: some projects for which mayors must apply to the state government. Elected may- find that mayor-council cities spend more than council- ors attract 7% to 7.4% more grants in election years; for appointed mayors, manager cities (Booms, 1966; Lineberry & Fowler, 1967), there is no cycle. Using hand-collected data on mayor characteristics, I find suggestive evidence that although the selection of mayors changes follow- while others reach the opposite conclusion (Clark, 1968; ing the reform studied, a likely reason for the observed cycle is that elected Coate & Knight, 2011; Sherbenou, 1961) or find no effect mayors have stronger electoral incentives. (MacDonald, 2008). A limited number of studies focus on other outcome variables. Levin and Tadelis (2010) find I. Introduction that privatizations take place more often in council-manager cities than in mayor-council cities. Vlaicu and Whalley central question in political economy is how to select (2016) are the first to consider political cycles: elected may- Apublic officials. Public officials may be appointed by ors hire more police officers in election years to please an elected body, such as a legislature, or directly elected voters who value security. This is not the case in cities with by voters. The way in which public officials are selected appointed mayors. Enikolopov (2014) focuses on patronage is likely to affect policy choices for two reasons. Based on as a tool for targeted redistribution and provides evidence political agency models, it is plausible that elected public that the number of public employees is larger in mayor- officials face stronger incentives to perform well in office council cities than in council-manager cities, especially in and have characteristics that make them more appealing to election years.3 voters than appointed public officials (Besley, 2006; Persson Although the literature on mayor-council and council- & Tabellini, 2000).1 This is the first study to explore whether manager cities offers compelling results regarding the impor- there is a causal effect of the selection method for an impor- tance of the selection rule for policy choices, it has to tant type of public official, local government executives, on confront a number of empirical difficulties. First, citizens policy choices and to investigate underlying mechanisms. in U.S. municipalities can choose their form of government Previous literature on the selection method for local exec- in a local referendum that may give rise to reverse causality.4 utives focuses on U.S. municipalities, where two main forms A second issue is cotreatment: managers and mayors in the United States differ not only in the way they are selected. Received for publication September 9, 2015. Revision accepted for publication February 22, 2017. Editor: Brigitte C. Madrian. Managers are typically nonpartisan bureaucrats required to * University of Konstanz. have a professional background in public administration. I am grateful to two anonymous referees, Toke Aidt, Massimo Bordignon, Mayors are professional politicians endowed with more for- Daniel da Mata, Patricia Funk, Christina Gathmann, Krisztina Kis-Katos, 5 Gabriel Leon, Jo Thori Lind, Stephan Litschig, Raffaele Miniaci, Christoph mal powers to influence policy decisions than managers. A Schaltegger, Julia Shvets, Steven Stern, Thomas Stratmann, and seminar third difficulty is measurement error: official information on participants at a Political Economy Workshop at Jesus College in Cam- bridge, the 2013 Silvaplana Workshop, the 2013 Asian Meeting of the Econometric Society in Singapore, the 2013 Xmas Meeting of German 2 According to Enikolopov (2014), two-thirds of all U.S. cities can be clas- Economists Abroad in Konstanz, the 2014 EPCS Meeting in Cambridge, sified into these two types. The remaining ones are cities with commission, the 2014 RES Meeting in Manchester, the 2014 IIPF Meeting in Lugano, town meeting, or representative town meeting forms of government, as well the 2014 EEA Meeting in Toulouse, the 2014 VfS Meeting in Hamburg, and as counties with commission form of government. seminars in Bamberg, Brescia, Dortmund, Gothenburg, Heidelberg, Kiel, 3 Besides these studies on the form of local government, there is also and Lund for many helpful suggestions. Tobias Steinhauser has provided a related literature on the selection method for officials in other areas of excellent research assistance. I thank Ulrich Dressler and Stephan Ostgen the public sector. Choi, Gulati, and Posner (2008) show that while elected (Ministry of the Interior and Sports) and Horst Hiess (Ministry of Finance) judges write more opinions than appointed ones, their opinions tend to be for answering my questions about institutional details in Hesse. I thank the of lower quality (see also Iaryczower, Lewis, & Shum, 2013, and Lim, University of Cambridge and Universitat Pompeu Fabra for the hospitality 2013). Besley and Coate (2003) find that elected regulators choose more they extended to me during research visits in 2013 and 2014. I acknowledge pro-consumer-friendly policies than appointed ones. Other public officials funding from the Young Scholar Fund. for whom selection rules have been explored are school superintendents A supplemental appendix is available online at http://www.mitpress (Partridge & Sass, 2011) and city treasurers (Whalley, 2013). journals.org/doi/suppl/10.1162/REST_a_00684. 4 One notable attempt to address endogeneity is the use of precipitation 1 This is also supported by empirical studies that show that policy choices shocks as an instrument for changes in the form of government (Vlaicu & are affected by selection and incentives of officeholders due to term lim- Whalley, 2016). its (Alt, Bueno de Mesquita, & Rose, 2011; Besley & Case, 1995; List & 5 The two main forms of government in the United States may also differ in Sturm, 2006) and the type of electoral rule (e.g., proportional versus plural- other respects, as any detail can be changed in a local referendum. Recently, ity rule) that is applied (Funk & Gathmann, 2013; Gagliarducci, Nannicini, many council-manager cities have also selected a mayor who serves on the & Naticchioni, 2011; Persson and Tabellini, 2003). council but has less political influence than a mayor in a mayor-council city. The Review of Economics and Statistics, March 2018, 100(1): 51–64 © 2018 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology doi:10.1162/REST_a_00684 Downloaded from http://www.mitpressjournals.org/doi/pdf/10.1162/REST_a_00684 by guest on 28 September 2021 52 THE REVIEW OF ECONOMICS AND STATISTICS the form of government in U.S. cities is not available. The is prepared and submitted by its mayor. Therefore, grant studies therefore rely on administrative surveys, which have receipts directly depend on mayors’ effort and competence, been shown to provide diverging classifications for some and mayors can claim exclusive credit for grant receipts. municipalities, in turn leading to contradictory empirical This is supported by anecdotal evidence that mayors utilize results (Coate & Knight, 2011).6 their success in attracting investment grants in their electoral In this paper, I exploit a quasi-experiment at the level campaign via the local media.8 On the other hand, spending of German municipalities to study the effect of the selec- and police hiring are not under the direct control of may- tion rule for mayors on their policy choices. Following a ors in my context. Second, investment grants are restricted statewide referendum in 1991, municipalities in the German to public projects that happen to be highly visible to voters state of Hesse switched from mayor appointment to direct (e.g., day care facilities, road construction). A third contri- mayor elections between 1993 and 1998. The end of the bution is that I combine official election and fiscal data at term of the last appointed mayor varies across municipali- the municipality level with hand-collected information on ties for exogenous historical reasons that are orthogonal to individual mayors. Data on mayor appointments (e.g., dates, municipality characteristics. This randomization determines identities of mayors, party affiliations) are not available from the timing of the switch in a particular municipality. At the an official source. Similarly, there is no official information same time, the reform did not change the balance of power on the education level, occupational background, and age and responsibilities between the mayor and the local coun- of elected or appointed mayors. This unique combination of cil. Finally, official information on