Why local governments do not maximize profits: on the value added by the representative institutions of town and city governance

This paper provides an explanation for the lack of profit-maximizing local governments and for the historically widespread use of more or less representative forms of town and city governance. The analytical part of the paper suggests that profit-maximizing governments suffer from a ??proprietor??s dilemma,?? which can be reduced by including a representative council with veto power over new taxes. Limited but costly mobility plays a role in the analysis, as does the fact that residents often make investments in a town that are difficult to relocate once made.