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Policy Innovation in Local Jurisdictions: Testing the Neighborhood Influence Against the Free-Riding Hypothesis

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Author Info
Johannes Rincke (Zentrum für Europäische Wirtschaftsforschung)
Abstract

Before making difficult decisions, individuals tend to collect information on decision makers in reference groups. With respect to policy innovations in a decentralized public sector, this may give rise to positive neighborhood influence on adoption decisions. On the other hand, due to learning externalities, an incentive exists to free-ride on policy experiments of others. In this paper, U.S. data on school district policies are used to show that with respect to policy experiments, decision makers indeed are heavily affected by decision makers in reference groups. The results suggest that if a given district's neighbors' expected benefits from adopting a new policy increase, this substantially increases the original district's probability of adoption. The paper thus rejects the free-riding hypothesis and supports the view that in federal systems the discusion of policy innovations is stimulated by horizontal interactions between jurisdictions.

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Paper provided by EconWPA in its series Public Economics with number 0511009.

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Date of creation: 16 Nov 2005
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Handle: RePEc:wpa:wuwppe:0511009

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Find related papers by JEL classification:
D6 - Microeconomics - - Welfare Economics
D7 - Microeconomics - - Analysis of Collective Decision-Making
H - Public Economics

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  5. Scharfstein, David S & Stein, Jeremy C, 1990. "Herd Behavior and Investment," American Economic Review, American Economic Association, vol. 80(3), pages 465-79, June.
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  6. Krasker, William S. & Kuh, Edwin & Welsch, Roy E., 1983. "Estimation for dirty data and flawed models," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 1, chapter 11, pages 651-698 Elsevier. [Downloadable!] (restricted)
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  1. Rincke, Johannes, 2005. "Neighborhood Influence and Political Change : Evidence from US School Districts," ZEW Discussion Papers 05-16, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  2. Johannes Rincke, 2005. "Neighborhood Influence and Political Change: Evidence from US School Districts," Public Economics 0511011, EconWPA. [Downloadable!]
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