Common pool size and project size: an empirical test on expenditures using Danish municipal mergers

The paper examines the proposition from the law of 1 over n (Weingast et al. <CitationRef CitationID="CR27">1981</CitationRef>) that project size tends to increase with common pool size. Comparable studies have tended, firstly, to focus on assets and debt rather than on expenditures and, secondly, on district population rather than on the number of districts as in the original formulation of the law. Both issues are sought to be remedied in this paper. The proposition is examined on Danish municipal expenditures from 1996 to 2006, using municipal mergers towards the end of this period as a quasi-experiment. A difference-in-difference identification strategy and a subsample strategy are used to identify the effect of the availability and size of a common pool on municipal expenditures. The paper finds positive, statistically and economically significant effects of the availability and size of a common pool in the final year of the treatment period. The importance of the number of districts over district population suggests a reappraisal of the law of 1 over n as originally formulated. Copyright Springer Science+Business Media, LLC 2014