Consider the Chicago metropolitan area. Within its boundaries operate over 1,200 units of local government—municipalities, townships, school districts, park districts, and countless special-purpose authorities. Each possesses taxing power. Each makes land-use decisions. Each competes with its neighbours for economic development. This is not unusual. American metropolitan areas contain, on average, hundreds of overlapping jurisdictions.

The spatial logic here seems straightforward: local governments respond to local preferences. But metropolitan economies don't respect municipal boundaries. Labour markets span dozens of jurisdictions. Infrastructure networks require regional coordination. Environmental problems flow across city limits without pausing to check the zoning map.

This mismatch—between fragmented governance and integrated economic space—creates systematic coordination failures. These failures don't just inconvenience regional planners. They shape where investment flows, how land gets used, and ultimately, which regions prosper and which stagnate. Understanding these dynamics reveals why governance structure may matter as much as traditional development policy.

When multiple governments compete for the same tax base, peculiar patterns emerge. Each jurisdiction has incentives to attract tax-generating land uses while repelling those that consume services. The result is what economists call fiscal zoning—land-use regulations designed not to optimise urban form but to maximise the gap between revenue generated and services required.

Watch this dynamic play out across a typical metropolitan area. Affluent suburbs zone exclusively for large-lot single-family homes, ensuring residents generate property tax revenue while demanding few services beyond good schools. Commercial development clusters wherever jurisdictions offer the most favourable tax deals. Affordable housing and social services concentrate in older central cities or inner-ring suburbs with less regulatory power to exclude them.

The aggregate effect undermines regional efficiency. Jobs locate based on tax incentives rather than accessibility to workers. Housing segregates by income not because of market preferences alone but because of regulatory barriers designed to protect local fiscal positions. Infrastructure investments serve parochial interests rather than regional connectivity.

Research quantifies these costs. Metropolitan areas with more fragmented governance structures show weaker economic growth, greater income inequality, and less efficient land-use patterns than regions with more consolidated governance. The problem isn't that local governments are individually irrational—each is responding logically to its incentive structure. The problem is that no one governs the regional economy that actually exists.

Takeaway

Fragmented governance transforms land-use planning from a tool for urban efficiency into a weapon for fiscal competition, producing metropolitan patterns that serve no jurisdiction's long-term interest.

Every jurisdiction within a metropolitan area benefits from regional prosperity. A thriving regional economy generates jobs, supports property values, and produces tax revenue across municipal boundaries. Yet achieving regional prosperity requires coordination that fragmented governance systematically undermines.

Consider regional transit. Every suburb benefits from access to a functional transit network connecting workers to jobs. But no single suburb captures enough benefit to justify funding regional infrastructure alone. Each has incentives to free-ride on others' investments while blocking transit through its territory if local costs seem to outweigh local benefits. The result: American metropolitan areas consistently underinvest in regional transit compared to international peers with more consolidated governance.

The same logic applies to environmental protection, workforce development, and affordable housing. Regional aquifers require coordinated management, but each jurisdiction pumping from the same source has incentives to maximise its own extraction. Regional workforce training benefits employers throughout the metropolitan area, but any single jurisdiction investing heavily watches trained workers migrate to jobs elsewhere. Affordable housing near transit and employment centres benefits regional economic efficiency, but each jurisdiction has incentives to exclude it.

These are textbook collective action problems—situations where individual rationality produces collective irrationality. Metropolitan areas are stuck in a governance structure designed for a world where economic geography was local, applied to a world where functional economic regions span dozens of political jurisdictions.

Takeaway

Metropolitan areas face a structural tragedy of the commons: each jurisdiction pursuing its rational self-interest produces outcomes that damage the regional economy on which all depend.

Reformers have proposed responses ranging from complete metropolitan consolidation to loose voluntary coordination. Each approach involves trade-offs between coordination capacity and local responsiveness—and each faces substantial political obstacles.

Full consolidation—merging all jurisdictions within a metropolitan area into a single government—maximises coordination capacity. Indianapolis-Marion County's UniGov merger in 1969 demonstrated the approach. But consolidation threatens established political interests, dilutes suburban voting power, and generates fierce resistance. Most consolidation attempts fail at the ballot box. Where they succeed, they rarely encompass entire functional economic regions.

At the other extreme, voluntary regional councils allow coordination without threatening jurisdictional autonomy. Portland's Metro represents the strongest American example—a directly elected regional government with authority over land use and transportation planning. But even Metro's authority remains limited, and most regional councils lack meaningful power. They coordinate what jurisdictions agree to coordinate and leave the hard problems—fiscal competition, exclusionary zoning, regional housing—untouched.

Between these poles lie various intermediate approaches: special-purpose regional authorities for specific functions, state-mandated regional planning requirements, tax-base sharing arrangements like Minnesota's fiscal disparities program. Each addresses particular coordination failures while leaving the fundamental governance fragmentation intact. The question regional strategists must answer: which combination of reforms is both politically achievable and sufficient to enable the regional coordination that integrated metropolitan economies require?

Takeaway

Governance reform faces a political paradox: the jurisdictions that must agree to surrender autonomy are precisely those that benefit most from the current fragmented arrangement.

Metropolitan governance fragmentation isn't merely an administrative inconvenience. It structures competition among jurisdictions in ways that distort land use, underinvest in regional infrastructure, and concentrate poverty while dispersing opportunity. The economic geography has integrated while the political geography remains Balkanised.

Reform remains difficult precisely because fragmentation serves some interests well. Affluent suburbs benefit from their ability to exclude fiscal burdens while free-riding on regional economic dynamism. Changing governance requires convincing those who benefit from the current system that regional prosperity depends on regional coordination.

Understanding these dynamics matters for anyone working in regional development. The most sophisticated economic development strategy will founder if implemented within a governance structure that systematically prevents coordination. Sometimes the binding constraint on regional prosperity isn't policy content—it's the fragmented system responsible for making policy.