IN recent years there have been notable advances in the methodology used in empirical studies of state and local public spending. The rather ad hoc econometric studies of the mid-1960s are being replaced by more carefully specified models, e.g., Barr and Davis (1966), Ohls and Wales (1972), Borcherding and Deacon (1972), and Bergstrom and Goodman (1973). Most of these efforts share the common feature that expenditures are viewed as responses to collectively exercised demands. While these studies have yielded insights, all have been partial equilibrium in nature and none has incorporated the possibility of substitution among public services in response to changes in relative costs. A goal of the present paper is to fill this gap by directly modeling and estimating such substitution effects in collective consumption. To accomplish this, it is convenient to view expenditure decisions in the public sector as analogous to consumer choices in the private sector, i.e., as if generated by utility maximization subject to a budget constraint. Quite aside from any advantages this approach holds for empirical analysis, this view of the public decision-making process has been highly attractive to theoretical researchers. Although the utility maximization paradigm has never been subjected to a direct empirical test, it has been employed to predict the effects of intergovernmental grants and spillovers across jurisdictions, and to examine other topics. A second aim of this analysis, therefore, is to provide empirical evidence on the tenability of this view of the local public sector.

The effect of insecure ownership on ordinary investment and natural resource use is examined. Insecure ownership is postulated to depend on the type of government regime in power and the prevalence of political violence or instability. The political determinants of economywide investment are estimated from cross-country data, and the results are used to form an index of ownership security. When introduced into empirical models of natural resource use, this index has a significant and quantitatively important effect on the use of forests and petroleum. Contrary to conventional wisdom, ownership risk slows resource use in some circumstances.

The empirical literature relating crosssectional variations of per capita public spending to various economic, political and demographic factors is both lengthy and varied.' Differences in expenditures over political units are explained by differences in per capita incomes, urbanization, area, population density, taxable capacity, tax rates, absolute population size, grantsin-aid from higher levels of government, and school-aged population rates. With few exceptions,2 the models employed in these studies are ad hoc constructions with little basis in the theory of choice.3 Our aims are to posit a model of public spending derived from the received theory of collective decision making4 and to test the significance of certain variables assumed by this simple theory to be important determinants of the levels of state and local government expenditures.