Municipal Government Approaches to Service Delivery: An Analysis From a Transactions Cost Perspective

Municipal governments are less likely to contract out for service delivery if citizen preferences for the service are heterogeneous. This conclusion is based on an analysis that extends to the public sector the empirical industrial organization literature on transaction costs and the “make or buy” decision faced by private firms. Service delivery practices for sixty‐three municipal services are examined. The findings are consistent with the proposition that the cost for writing and monitoring contracts may be an important consideration in municipal service delivery approach and that bureaucratic supply may not be as inefficient as some previous studies indicate.