Scandinavian Working Papers in Economics

Ratio Working Papers,
The Ratio Institute

No 306: Municipally owned enterprises: Nested principal-agent relations and conditions for accountability

Andreas Bergh (), Gissur Erlingsson (), Anders Gustafsson () and Emanuel Wittberg
Additional contact information
Andreas Bergh: Lund University and the Research Institute of Industrial Economics, Postal: Institutet för Näringslivsforskning, Box 55665, SE-102 15 Stockholm, Sweden
Gissur Erlingsson: Linköping University, Postal: Linköping University, 581 83 Linköping
Anders Gustafsson: Jönköping International Business School, Postal: The Ratio Institute, P.O. Box 5095, SE-102 42 Stockholm, Sweden
Emanuel Wittberg: Linköping University, Postal: Linköping University, 581 83 Linköping

Abstract: Market-inspired reforms have been particularly pronounced in Swedish local government. Noteably, municipally owned enterprises (MOEs) have rapidly grown in numbers. Principal-agent theory leads us to suspect that the massive introduction of MOEs may have worsened conditions for accountability. To study this, we have employed social network analysis, mapping networks for 223 MOEs in 11 strategically chosen municipalities, covering a total of 723 politicians. The analysis shows substantial overlaps between principals (representatives of the owners) and agents (the boards of the MOEs), quantified using network modularity. Corporatization of public services therefore implies worrisome entanglings between the politicians who are set to steer, govern and oversee MOEs on the one hand, and the board members of MOEs on the other. The increasing numbers of MOEs, we argue, may hence have adverse effects on accountability in important and growing parts of the local economies.

Keywords: Social Networks; Accountability; Transparency; Corruption; Publicly Owned Enterprises; Hybrid Organizations; Local Government; New Public Management

JEL-codes: D73; P16

50 pages, First version: March 21, 2018. Revised: October 18, 2018.

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