ENDOGENOUS INSTITUTIONAL CHANGE: THE TRANSFORMATION OF THE STATE-LOCAL RELATIONSHIP IN THE UNITED STATES

Abstract

This thesis focuses on the changing relationship between state and local governments. I explore state-level constitutional changes in the 19th and early 20th century with respect to the governance and organization of municipalities. The rich heterogeneity across state constitutions gives us an opportunity to understand the underlying political and economic forces at work, using a fiscal federalism and political economy framework. There are parallels between state-level constitutional changes regarding private corporations and the less well understood changes instituted for public corporations such as municipalities. The adoption of municipal general legislation stemmed from similar problems of special interests and political maneuvering under special legislation. In some states, general legislation protected municipalities from unwanted abuse by state-level politics, and provided a uniform structure under which all local governments could operate and easily gain access to the corporate form. However, as in the case of private corporations, the one-size-fits-all rubric of general legislation was often not amenable to all municipalities. Some states implemented a Pareto-improving solution, which is to have general legislation available for those well served by it, and to give municipalities the flexibility to self-select and independently charter themselves. The resolution to grant home rule to municipalities retained the political security afforded by general legislation and provided the freedom of organization to those who needed it most.

The thesis is organized as follows. Chapter 2 documents the history of the relationship between states and their municipalities. The chapter also discusses the various problems states had in maintaining the original setup of passing special laws for municipalities. Chapter 3 evaluates the changing economic and political conditions which may influence a state's choice of how to structure the state-municipal relationship. Chapter 4 looks at one institutional change, the adoption of home rule. By using a unique municipal-level dataset, I empirically investigate why certain states may have adopted this institution. Chapter 5 considers another form of local government, the school district. The patterns seen in the state-municipal relationship are mirrored in the state-school district relationship.