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Effects of “Democratic Control” on the Efficiency of Local Public Enterprises: Empirical Evidence for Water Suppliers in Eastern Germany

PFM, Vol. 8 No. 1, (2008)

This paper deals with the effects of interference by lo¬cal governments on the business affairs of publicly owned utilities. A partial model is presented to illustrate the conse¬quences of “democratic control” on the public managers’ effort and the efficiency of local public production. To empi¬rically check the theoretical results, a two-stage data enve¬lopment analysis (DEA) was carried out on a sample of Eas¬tern German water suppliers. The organizational form is used in the regression analysis to measure the degree of municipal control. The results of the OLS- and Tobit regression indicate an efficiency-enhancing effect on organizational forms with less distinctive control options for local politicians.

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