What Determines Where Public Investment Goes? Regional Governance and the Role of Institutional Rules and Power

• Published date: 01 January 2021
• Author: Brian Y. An,Raphael W. Bostic
• Date: 01 January 2021
• DOI: http://doi.org/10.1111/puar.13220

64 Public Administration Review • Januar y | Fe brua ry 202 1

Abstract: As an embodiment of the collaborative governance model, metropolitan planning organizations in the

United States allocate federal, state, and local funds to member municipalities for transportation projects across their

regions. To examine how institutional rules and power shape where public investment goes, the authors consider the

extent to which the allocation of local voting power in regional governing policy boards influences the spatial alloca-

tion of transportation investments. The analysis shows that the power structure of regional policy boards is consistently

a major factor associated with the observed geographic distribution of investments. Moreover, the results suggest that

the degree of power concentration of the dominant city in the region influences whether the remaining cities’ power

matters. These results suggest that institutional governance rules may be more important than previously recognized.

Evidence for Practice

• Regional organizations’ allocation of resources is a function of the interaction of the rule-based allocation of

power and the degree of dominance of a region’s central city.

• The degree of power concentration of the dominant city influences whether the power held by the other

cities in a region matters in funding allocation outcomes.

• To achieve collaborative governance process in which a broad range of participants can shape the allocation

outcomes, practitioners should develop a representation system that encourages inclusive sharing of voting

power among participants themselves.

Local governments in the United States and

elsewhere are increasingly choosing collaborative

approaches to resolve institutional collective action

problems and to achieve better regional policy outcomes.

Much of the recent research on interlocal collaboration

asks what rules, incentives, and resources are available to

local jurisdictions so that public managers can overcome

transaction costs embedded in joint actions and

maximize benefits (Hansen, Mullin, and Riggs2019;

Ki, Song, and Kwak2020; Klok et al.2018; Lubell et

al.2017; Song, Park, and Jung2018; Yi et al.2018).

One strand of scholarly inquiry focuses on what

forms of governance should be adopted to integrate

institutional collective action problems. Depending on

the characteristics and scale of the policy problem and

the degree of transaction costs entailed in collaboration,

localities may join informal networks such as voluntary

associations, create cross-jurisdictional special districts,

or form regional councils of governments (Feiock2013).

This article focuses on the third of these.

Regional councils have been found to minimize

transaction costs for high-risk cooperation (Kwon,

Feiock, and Bae2014), which is particularly

useful when the collaboration involves many

actors and they jointly need to make long-term

investments (Olson1971). In polycentric systems of

governance, one such policy area is transportation

planning; by its nature, transportation policy carries

interjurisdictional externalities that cannot be

addressed by local governments’ independent actions

(Howell-Moroney2008). In the United States, the

regional council for transportation planning is the

metropolitan planning organization (MPO). The

federal statute mandates any urbanized area with a

population greater than 50,000 to establish an MPO.

Nationwide, 420 MPOs allocate hundreds of billions

of federal dollars every year.

MPOs decide how to allocate federal, state, and

often local funds for transportation investments.

The organizations’ mission is to fund transportation

projects that bring a significant impact throughout

their regions. Practitioners typically view MPOs as

professional bureaucracies that make collaborative,

data-dependent funding decisions such that no single

jurisdiction’s parochial interests prevail over others.

Notwithstanding this practitioner perspective, we lack

robust empirical evidence regarding what guides their

investment allocation decisions.

What Determines Where Public Investment Goes? Regional

Governance and the Role of Institutional Rules and Power

Brian Y. An Raphael W. Bostic

Georgia Institute of Technology Federal Reserve Bank of Atlanta

Research Article

Raphael W. Bostic is president and chief

executive officer of the Federal Reserve

Bank of Atlanta. Much of this work was

conducted while he held the John and

Judith Bedrosian Chair of Governance and

the Public Enterprise in the Price School of

Public Policy at the University of Southern

California.

Email: raphael.bostic@atl.frb.org

Brian Y. An is assistant professor in the

School of Public Policy at the Georgia

Instiute of Technology. His research

examines urban policy, public finance,

governance reform, and social equity

issues in local public service, focusing on

the role of institutions in shaping policy

effectiveness. Before joining Georgia Tech,

Dr. An taught in the Department of Political

Science at the University of Tennessee,

Knoxville as assistant professor. He holds a

doctorate in public policy and management

from the Price School of Public Policy at the

University of Southern California.

Email: yan74@gatech.edu

Public Administration Review,

Vol. 81, Iss. 1, pp. 64–80. © 2020 by

The American Society for Public Administration.

DOI: 10.1111/puar.13220.

Regional Governance and The Role of Institutional Rules and Power 65

In this article, we seek to address this gap by examining whether the

power structures created by MPO institutional rules are relevant

for their resource allocation decisions. Specifically, we ask whether

voting power of participant cities in the MPO governing boards

influences resource allocation outcomes. We choose to focus on the

role of local power in part because regional organizations such as

MPOs are often theorized to directly blunt its importance (Deyle

and Wiedenman2014; Innes, Booher, and Di Vittorio2010).1

Leveraging a unique data set of geocoded transportation projects

programmed and approved by the four largest MPOs in Texas, we

show that the extent of cities’ voting power in governing boards is

an important factor that explains the distribution of projects across

the local jurisdictions. This remains true even when we consider

other external factors that were described to be more important

by practitioners, such as traffic and road pavement conditions,

demographics, and the employment environment.

We also find that the internal power structure of MPOs has

consequences for whether member cities meaningfully shape

funding allocation outcomes in the region. In regions where local

voting power is heavily concentrated in a primary dominant city,

marginal shifts in power among the remaining localities do not

significantly affect funding allocation outcomes. By contrast, when

the dominance of the primary city or cities disappears, a marginal

increase in power for a nonprimary city translates into a significantly

higher likelihood that a project located in the city will receive

funding.

These results differ from what was predicted by the policy makers

and practitioners interviewed in our related research, suggesting

that institutional governance rules may be more important than

previously recognized. Our article provides some avenues to enrich

the discussions on how power dynamics in collaborative governance

systems can be addressed through the effective design of governance

structures and processes. Relatedly, our work underscores the role of

institutions on equitable regional development.

First, in keeping with recent arguments on the distribution of power

and institutional design in collaborative governance scholarship,

our results suggest a connection between research and actions that

policy makers are recommended to take. We suggest that policy

makers and public managers must not only give attention to the

institutional rules and distribution of power in intergovernmental

organizations. They must also take actions to develop a more

inclusive representation system. Developing such a system requires

empowering less powerful localities in decision-making so that

the funding allocation process is not dominated by a few powerful

actors but rather is shaped by collective inputs across a broad range

of participants. In doing so, policy makers would be tasked to strike

a right balance between equity and efficiency considerations of

resource allocation.

Second, the findings add to discussions on ideal forms of

government in metropolitan economies. While scholars have

long debated whether a consolidated government form would

enhance the efficiency and equity of public services, one area that

often has been neglected in the literature is the role of existing

regional institutions and how they can contribute to metropolitan

development. Our work suggests that it is not just institutional

choice that matters. The design of the governing structure,

particularly the distribution of formal power, is also important. This

article highlights the issue of balance of power in regional bodies as

a critical aspect of collaborative metropolitan governance.

The article proceeds as follows: The next two sections provide a

brief background on the literature on public goods provision as

well as information on regional planning organizations and the role

played by them in public investment allocation. It then builds on

relevant theories to develop our arguments and hypotheses. The

following section presents the data, methods, and empirical analysis.

The article concludes by discussing our contribution to the scholarly

debates on metropolitan governance as well as policy implications

for public sector organizational management.

Political Power and Public Goods Allocation across

Localities in a Region

A large literature has identified multiple factors that shape the

provision and spatial allocation of public goods across localities

in a region. Tiebout’s(1956) seminal theory identified residential

choice dynamics as a key consideration. By voting with their feet

and allocating themselves across jurisdictions that vary in the bundle

of public goods local governments provide, citizens reveal their

demand.

Building on Tiebout(1956), Peterson(1981) introduces a

city limit model in which a competitive urban environment

causes local governments to prefer development-oriented public

investment, such as in highways and transportation infrastructure,

to redistributive programs. While Peterson’s theoretical argument

has found some empirical support, both in terms of mayoral

preferences (Saiz1999) and city spending patterns (Jimenez2014;

Minkoff2012; Schneider1989), many have argued that the

model reduces the complex structure of city decision-making to

economic imperatives and constraints and overlooks the role of

other factors, including political and institutional considerations

(Basolo and Huang2001; Einstein and Glick2018; Hajnal and

Trounstine2010).

Indeed, a growing body of recent research finds that political

ideology influences the allocation of public goods even at the local

level, with a particular ideology being associated with lower levels

of local public spending (de Benedictis-Kessner and Warshaw2016;

Gerber and Hopkins2011), stronger support for redistributive

programs (Einstein and Glick2018), and greater collaboration

through interlocal agreements (Gerber, Henry, and Lubell2013;

Song, Park, and Jung2018). Yet, despite the prominence of theories

on urban governance that have focused on political power (e.g.,

Dahl1961; Stone1989), relatively few empirical studies explicitly

incorporate political power considerations into resource allocation

decision-making process for urban public goods (Hochschild2008).

Our research adds to this limited literature by exploring how

political power affects resource allocation decision-making in

regional organizations.

This article is also related to both distributive politics and

collaborative governance scholarship. Political scientists have long

argued that individual legislators in a national government care