An Empirical Analysis on Yardstick Competition among Local Governments and Implications for Roles of e-Government in Efficient Provision of Local Public Goods

In this study, we analyze the efficiency of the equilibrium of yardstick competition among decentralized local governments and investigate its empirical significance by using Japanese prefecture-level data. The model included in the paper features incomplete contracts between a principal and an agent (i.e., residents and the local government, respectively). The model states that a local government attains accountability through the voting behavior of its residents in accordance with a yardstick comparison of their own locality with their neighboring localities. We find that local governments tend to under-supply local public goods; in addition, to improve the efficiency of the yardstick equilibrium, local governments must supply local public goods after considering regional disparities regarding residents’ preference conditions and other factors. E-Government is a promising means of promoting information policy of local governments. Using an e-Government evaluation and an investigation of SNS use by local government, we indicate the effectiveness and the problems of Japanese e-Government.