What options are available for delivering public services, and how do local governments choose between them?

Abstract

Local governments provide numerous services to their citizens. In doing so, they utilize two primary methods to deliver them: (1) producing them in-house with their own employees and equipment or (2) outsourcing them to external actors, which may take the form of other public agencies, for-profit firms, or non-profit organizations. In this entry, the authors review the logic of why local governments might choose one mechanism over another. The goal is to give readers a feel for the state of the academic literature in this regard. After reviewing basic concepts, such as the difference between the “provision” and “production” of services, the authors frame the discussion in terms of a variety of lenses used by scholars attempting to better understand the determinants of such decision-making. These include agency theory, transaction cost economics, and New Public Management. The authors also consider the role that management capacity plays in allowing cities to successfully deliver services to their constituents. Additionally, the authors offer a discussion regarding how local governments partner with non-profits in less formal ways than contracting to ensure their citizens have access to needed services. Finally, there is a review of the tradeoffs between efficiency and other values that should be accounted for when arranging service production.