Monday, September 26, 2005

Governance and the City: New World Bank Evidence

A recent World Bank Study (see World Bank Policy Research Working Paper 3712, September 2005) has the ambitious goal of quantifying which cities around the world are “well run”. A revealed preference test might study whether home prices are high and whether net migration flows are positive. But such evidence would only be suggestive because the locality might be booming despite the public sector not because of the public sector.

Here is their approach “With these measures, we construct a vector of urban governance indicators which we use to test the impact of urban governance on city performance. The vector consists of measures of voice and participation and transparency and accountability which we take from the UN database. We also use measures like illegal financing, state capture, bribery in utility, and bribery in judiciary from the Kaufmann, LĂ©autier, and Mastruzzi (KLM) database. Finally, we construct a dynamic indicator of city transparency which uses proxies like, whether a city has a web page, what information is included in the web page, whether the city budget is publicly available on the web or whether companies can register on the web.”

Table 1: Variable Legend and Data Sources

Access to Water UN Observatory, 1998
Access to Sewerage UN Observatory, 1998
Access to Electricity UN Observatory, 1998
Access to Telephone Lines 1 UN Observatory, 1998
Access to Telephone Lines 2 EOS, 2003 1 Quality of Infrastructure EOS, 2003 1 Quality of Electricity EOS, 2003 1 Access to Cell Phones EOS, 2003 1 Access to Internet in schools EOS, 2003 1 Bribery in Utility EOS, 2003 1 State Capture EOS, 2003 1 Informal Money Laundering EOS, 2003 1 Street Crime EOS, 2003 1
Red Tape Cost of Imports EOS, 2003 1 Bribery to Affect Laws EOS, 2003 1
Diversion Public Funds EOS, 2003 1 Illegal Party Financing EOS, 2003 1 Bribery in Permits EOS, 2003 1 Bribery in Tax EOS, 2003 1 (
Soundness of Banks EOS, 2003 1
Trust in Politicians EOS, 2003 1 Organized Crime EOS, 2003 1
Quality of Postal System EOS, 2003 1 Health Access Gap EOS, 2003 1 Offices of major advertising,
Global City financial & accounting firms Hundreds 114 261
City Population Logs 134 410

Website Dummy City has a website (KLM 2003) City website has info on how to
Business Dummy City website has info on city Budget Dummy
City has port facilities (KLM
Port Dummy 0 - 1 (yes) 134 411
Capital Dummy City is the capital (KLM 2003) 0 - 1 (yes) 134 411

I would think that these researchers would want some measure of whether the citizens of the city actually get to vote in a kosher election. Does democracy improve urban governance? I hope it does! Iraq may soon offer an interesting test of this hypothesis. Singapore would suggest that I am wrong that the Arrow Impossibility theorem pops up as heterogeneous interest groups within a city cannot agree on urban priorities and problems fester.

I would also be interested in competition between cities within the same nation. If Detroit gets a reputation for being a low governance city, do businesses move to the suburbs of Detroit or to another center city? Is there a “race to the top” such that urban competition puts a check on the ability of politicians to steal from the tax base?