The Moderating Effects of Social Norms on Pre-merger Overspending: Results from a Survey Experiment

Abstract

The proposition that amalgamation reforms lead to a common-pool problem is strongly supported; governments are incentivized to overspend before the merger is implemented. However, existing literature helps little in understanding why some governments do not overspend in the pre-merger period, and why hoarders do not overspend more than they do. One explanation hitherto overlooked is the moderating effect of social norms. Two hypotheses regarding the importance of social norms are tested with data from a survey experiment conducted on over 3,000 Norwegian local elected officials. The analysis supports both: Support for hoarding is lower when hoarding is debt-financed than when financed by savings. Support for hoarding is also lower when others in the amalgamation are anticipated not to hoard than when they are. That pre-merger hoarding varies with different levels of social obligations vis-à-vis the amalgamation has implications for common-pool theory and for reformers of the structure of government.