Yet similar institutions are found in countries that have grown rapidly, such as Italy. The model and the empirical analysis in this essay are meant to make explicit how different aspects of patronage-based political systems are linked to government performance. The analysis depends on game theoretic public choice models of machine governments, a subjective coding of cities as machine or non-machine based on the historical literature on individual cities, and an econometric analysis of city characteristics, the presence of political machines, and the performance of government, including municipal budgets, municipal wages, and infrastructure provision. Politicians are assumed to maximize their material returns to political control. A boss organizes a machine by hiring political supporters, paid in patronage jobs, to gather information on voters.
Information is used to buy votes with private favors and to set the maximum sustainable taxes.
A politician organizes a machine if the machine technology is a cost-effective strategy. City governments are constrained by elections and by the fact that cities are small open economies with free movement of inputs and outputs. The political machine's ability to buy votes relaxes the electoral constraints on the government, but with open borders the government provides the socially optimal quantity of public goods to preserve the tax base. Vote buying allows the government to increase taxes. The key intuition of the model is that a kleptocrat who buys his way into office will be motivated to provide optimal levels of government goods and services if he can capture the resulting locational rents in higher taxes or graft.