CLOSUP Conferences

Privatization: Issues of State and Local Public Infrastructure

Ann Arbor, November 22, 2002

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Download the associated policy report (pdf).

Contractor and Sector Choice for Municipal Services Production: A Transaction Cost Approach

Richard Feiock, Florida State University
Carl Dasse, Florida State University
James Clingermayer, Murray State University

Abstract
Whether private or public organizations should contract out for products and services or provide them internally is a question that has attracted considerable attention. This paper argues that the transaction costs in local contracting choices are linked both to the characteristics of goods and the characteristics of political systems that influence political and administrative uncertainty. Our analysis examines the transaction costs that result from service type and executive turnover. Specifically, we are concerned with how uncertainty resulting from turnover in leadership positions in city government affects the ability of a municipality to negotiate contracts, make credible commitments to suppliers, and faithfully uphold and enforce contracts once they are in force. We find that both manager turnover and certain service types appear to reduce the likelihood of contracting, particularly with private sector providers.