Can game theory explain poor maintenance of regional government facilities?

Abstract

Purpose – The purpose of the paper is to analyze the decision to postpone maintenance expenditures in regional governments using a game-theoretical approach and investigate whether there may be rational reasons for regional governments to carry a maintenance backlog. Design/methodology/approach – A theoretical political economy model, originally used to explain fiscal deficits in regional governments, is revisited and used to explain maintenance backlogs. Findings – It can be fully rational for regional governments to carry maintenance backlogs, given that they expect the central government to “bail out” this backlog, e.g. through an extra grant earmarked for upgrading of facilities. Hence, a balanced budget regulation (BBR) demanding fiscal balance in regional governments is not sufficient to avoid bailouts. The results suggest that the central government should consider including maintenance of facilities in formal BBRs. Originality/value – The paper is relevant for policy makers, as it can give guidance with respect to the design of BBRs. The paper illustrates that regulations that only take fiscal balance into account are too narrow to secure that bailouts are avoided. The reason is that regional governments can strategically use maintenance backlogs to generate bailouts even when regional government borrowing is abolished. To avoid this, the central government could make the regulations more extensive, and also include demands regarding maintenance in the regulations.

Fuzzy Stochastic Automation Model for Decision Support in the Process Inter-Budgetary Regulation

“…The problems of applying "soft" and "hard" budget restrictions were discussed in articles by Chulkov D. [57], Hopland A. O. [58], Bethlendi A., Lentner C., and Nagy L. [59]. In the unitary Scandinavian countries, the concept of "administrative federalism" is used [60], in which a decentralized government is created from the center, and local authorities form an integral part of the public sector and are agents of this center.…”

Optimal maintenance scheduling for local public purpose buildings

“…As mentioned in the introduction, one of the major problems with low maintenance is that it creates a maintenance backlog and that accelerating decay gives that this is expensive to cover (see e.g., Hopland, 2015). For simplicity, we assume that the local government knows how the building will decay over time, under different maintenance schedules.…”

Mathematical Models for Implementation of the Concept of Hard budget Restrictions in the budgetary system

“…К числу работ, вскрывающих проблемы применения «мягких» и «жестких» бюджетных ограничений, можно отнести статьи Д. Чулкова [11], A. O. Хопланд [12]. В последнее время все больше исследователей разных стран склоняются к необходимости применения математических методов к изучению явления децентрализации в теории бюджетного федерализма как эволюционного пути развития экономики.…”