Turnover, Transaction Costs, and Time Horizons

This article explores the consequences that local government institutions and turnover among local government officials have for local borrowing. We outline how turnover affects choices in policy arenas involving public and private sector actors, long-term obligations, or future commitments. Turnover creates political uncertainty that alters the time horizons of local leaders as well as the transaction costs involved in the floating of bond issues. Empirical analysis of city borrowing patterns in the late 1980s provides evidence that turnover of council members and managers in council—manager cities increases municipal debt burdens. However, turnover of chief administrative officers in mayor—council cities is associated with less city borrowing.