Neither Market Nor Hierarchy: Concurrent Sourcing in Public Services
Journal of Public Administration Research and Theory, 2016
34 Pages Posted: 14 Feb 2019
Date Written: May 4, 2016
Analysis of local government contracting decisions typically focuses on the make or buy decision. Local governments can either directly produce the public service, i.e. make, or outsource the production of the public service, i.e. buy. In practice, however, local governments can and do both make and buy the same public services, a strategy that is often termed concurrent sourcing. This paper integrates transaction cost economics with the resource-based view of the firm to examine how transaction hazards and capabilities influence local governments’ propensities to outsource public services. Using a unique dataset on water public services of more than 4,000 French municipalities for four years — 1998, 2001, 2004 and 2008 — we find that low transaction hazards, prior contracting experience and low production capabilities have a positive impact on the level of concurrent sourcing. These findings suggest that organizations’ heterogeneity is a significant factor in governance decisions and that capabilities and their interactions with transaction hazards demand superior consideration in the study of organizational choices.
Keywords: Public-Private Partnerships, Transaction Costs, Firm Capabilities, Vertical Integration, Contracting
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