Three types of competition can be recognized in local government:

1. Traditional: between local authorities for power and resources.
2. New: between a council and other organizations for service production.
3. Neglected: between councils themselves.

Traditional competition involves interparty competition. It is often ineffective at the local level because:

1. Local parties enjoy large majorities and thus have no reason to compete.
2. Local parties lack incentive to compete because they are controlled by national political issues.
3. Local politicians lack the freedom to compete.

Boyne gives the example of the Conservatives in the UK government establishing the compulsory competitive tendering (CCT) program. They forced councils to request tenders from outside private suppliers (ex. construction, maintenance of highways). CCT was ineffective because it potentially decreased quality of service and reduced variety, and though it led to greater technical efficiency, it did not attain greater allocative efficiency, for it was concerned with production rather than provision.

Competition between councils (defined as new competition) competes on a geographic as well as on a tier-level basis. Three major variables which affect competition between councils are:

1. Structure
   • There are two types of structure: consolidated, where all services are provided by a single unit serving a large area; or fragmented, where local government is divided into tiers based on services.
   • Public choice espouses the use of fragmented structure to allow for choice in different neighborhoods (Tiebout model) and take advantage of scale economies.
   • The Tiebout model is said to only apply to a handful of metropolitan areas in the UK.
   • The advantages of a fragmented structure are:
     • It allows competition for a finite local tax base, improving services.
     • It leads to more flexibility in switching services and creating new ones.
       Horizontal fragmentation leads to new household and business tax base, and vertical fragmentation leads to a more efficient rather than prodigal tier of local government
2. Autonomy
   • Local governments should have flexibility to innovate, experiment, and create needs-driven distinctive policies.
   • This will lead to competition which will encourage individuals to move into clusters and develop homogeneous communities around preferences for public policy
     
      
3. Finance

• There exists an inverse relationship between central funding and local competition; as central funding increases, local competition decreases.
• Every community will emphasize a redistribution in their favor and de-emphasize any resulting inefficiencies because the gain of more funds will offset any inefficiencies in the grand scheme of things.
• The higher the level of central funding, the lower the incentive for fiscal movement between areas; fiscal migration will increase only as horizontal equity (people with same taxes receive same services) increases.
• Some central funding is necessary for equalization grants to neutralize variations between income discrepancies in different areas.
• Other public choice theory posits that grants lead to collusion rather than political competition, as local bureaucrats form cartels in order to limit price variation.

UK example

• Structurally, all-purpose authorities were created as the Greater London Council and six Metropolitan Counties were abolished.
• This has contradictory effects: it removes vertical competition as upper-tier. councils are abolished and remaining tiers have monopoly control on the tax base, but it introduces horizontal fragmentation in to former upper-tier services which are now more geographically fragmented.
• Local autonomy has declined because councils have created more compulsory obligations and less discretionary power.
• Central funding has risen because of policy changes and political fiasco relating to a poll tax.
• As a result, competition has been reduced in local government in the UK over the past decade.