Municipal Choices during a Recession: Bounded Rationality and Innovation

This study reports the findings of a comparative case study analysis of sixteen U.S. municipalities to provide an in-depth examination of the choices municipal leaders are making to address revenue shortfalls. The findings suggest that municipal fiscal choices during a recession fit the bounded rationality model. While local government leaders will attempt to follow a rational sequence of fiscal management decisions, as the economic situation worsens, the external pressures from electoral considerations, state government restrictions, and interest group involvement increase, leading a divergence in strategies. The greater the pressures (the bounds), the more unpredictable the choices among municipalities become.