There is a vast literature in transaction cost economics on the choice made by firms to integrate or not. To our knowledge, there have been no previous tests for understanding decisions made by governments to provide a service or to outsource. Our paper presents such a test, using a data base on all units supplying water for towns of more than 5000 inhabitants in France. Our results strongly support that : 1) There is an economic rationale to contractual choices in public utilities ; 2) There is no absolute advantage for one specific mode of governance, performance depending on the fitness of the mode of governance to the attributes of the transaction.
No takes yet. Share an insight, caveat, or question.
Ménard et al. (2000) studied this question.