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Contracting out: For What? With Whom?

Author(s): James Ferris and Elizabeth GraddySource: Public Administration Review, Vol. 46, No. 4 (Jul. - Aug., 1986), pp. 332-344Published by: Wiley on behalf of the American Society for Public AdministrationStable URL: http://www.jstor.org/stable/976307 .

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332

Contractingut:ForWhat?WithWhom?JamesFerris,UniversityfSouthern aliforniaElizabethGraddy, niversityf Southern alifornia

Contractingut has gained ncreasingttentionnre-centyearsas the fiscal fortunes f local governmentshave deterioratedand as privatizationhas gainedpolitical currency Bendick and Levinson, 1985). Inresponse o thesechanges nthe fiscal nd political n-vironment,ocalgovernmentsrerethinkingheways nwhich hey eliver ervices.Contractingutis the alter-native onsideredmostfrequentlyFerris,1985b).' Ex-ternally producing public services constrains themonopolisticpower of government ureaucracies. naddition, heseparation f theproducing nitfrom heconsuming nitpermitsheoptimal cale ofproductionto be chosen.To the extent hatthesetwofeatures rerealized, public service osts maybe reduced.Hence,contractingut can be an attractivelternativeopublicproduction.To understand he currentpatterns f contractingout, it s importanto know theconditionswhichmakeit a viableoption.Forthispurpose,wedevelop modelofthedecision ocontract ut. Thedecision s viewed sa two-step rocess. Thegovernment ecideswhether rnot tocontract utandthen hooseswithwhom o con-tract.We expect thesedecisions to vary depending nthenatureof the service nd thecharacteristicsf thecommunity. fterformulatinghemodel,we evaluateitsusefulness yanalyzing ata on theactual incidenceof contracting ut in local publicservice elivery.The outline f thepaper s as follows. n the next ec-tion we present heproduction hoicemodel and thenuse itto analyzedata to answer hequestion:contract-ing out forwhat?We thenpresent model of sectorchoice i.e., othergovernments, rivatefirms, r non-profit nd neighborhood rganizations) nd use it toanalyze data to answerthe question:contracting utwithwhom?

ProductionhoiceModelGiven decision oprovide service,3hegovernmentmustdecidewhetherheservice houldbe produced n-ternallyin-house), ointly public employees lus con-tractingut), or externallycontractingut). The localgovernment'sdemand for contracting ut and theavailable supply of externalproducersdetermine heproduction hoice decision. The conditionsand con-straints hat nfluence he local government's ecisionmay be either eneral, .e., acrossall services, rservicespecific.Generalfactors ffect he ikelihood f a local

* This aperdevelops two-stage odel fthedeci-sion to contract ut. Thefirst tage s thechoiceofwhethero producepublicly rovided ervicesnter-nally, xternally,r to reduce osts s well spotentialcost avings, hich epend rimarilyn thenaturefparticularervice. he econd tage n the ontractingdecisionsthe hoice f ectorwithwhichocontract-other overnments,rivateirms, rnonprofitrgani-zations.Sector hoice s primarilynfluencedy thenaturefthe ervicend the vailabilityf uppliersnthedifferentectors. hemodel s usedtoanalyze hecurrentontractingatternsf 1, 80 ities nd countiesfrom cross heUnited tates.

government o contract out for any service; servicespecific actors ffectwhich ervices re ikely obecon-tracted ut. Thus,inour model weaddress hequestionof why some governments ontractout more thanothers nd why ome services re contracted ut morefrequentlyhan others.According o itsproponents, hemainadvantageofcontracting ut sthepotential fficiencyain, .e., costsavings.4 For several services, evidencedemonstratesthatprivateproduction s cheaperthanpublicproduc-tion.5A majorprice f this ostsavings,however, sthelocal government's educed controlover the servicedelivery rocess.How much ontrolmustbe givenup toachievecost savings s criticalto the contracting utdecision.The local government'swillingness o makethistradeoff s determined y a variety f fiscalandpoliticalpressures.We consider hesevariousfactors nturn.A localgovernment'semandfor xternal roductionis likely to increasewith the potentialforefficiencygains. The potentialcost savingsderive fromthreeprimary ources: scale economies, ectordifferencesnlaborpractices, nd competitionmongsuppliers. caleeconomies an derive rom everal ources; hemost m-portant or urpurposes re scalesavingsn nputpricesand large-scalerequirements or capacity utilization.First, onsidernputprice avings. f theservice s suchthat largeproportion f its nputs re equipment ndmaterials, hen large-scaleproducersmay be able topurchase these at a lower price than small-scalepro-ducers.6 hus,for hese ervices,mallcitiesmayfind t

JULY/AUGUST 1986

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CONTRACTING OUT 333advantageous to contractwith a largerproducer.Thesecond major source of scale economiesderivesfromcapacityutilization.f the services suchthatpeak loaddemandchangesand/or crisisneedsoccur, then aborand equipmentmaybe underutilized. mall citieshavemuch essflexibilitynmanaging nputs o avoid under-utilization.Highercapacityutilizationfrom larger-scale producer an obviouslyreducecosts. Therefore,wewouldexpect maller ities o be more ikely o con-tract ut for erviceswitharger quipment ndmaterialrequirements nd serviceswith peak load demandchanges nd/orcrisisneeds.Labor cost savingsassociated withcontractinguttendto derivefrom ifferentaborpractices crosssec-tors,rather hanfromarge-scaledvantages.Thesedif-ferences n labor practicesmaybe attributable o thedifferentbehavioral objectives of the two sectors(Niskanen,1971).Regardless f themotivation, recentstudyEcodata, 1984) revealsthatprivate ontractors,when ompared omunicipalities,end o: requiremoreworkfrom mployees less iberalvacation nd leaveforequivalentsalaries); use the least qualifiedpersonnelable to performachtask;usepart-timeaborwhereverappropriate;requirethatmanagersbe responsible orequipmentavailabilityas well as labor availability;allow first ine supervisors iring nd firinguthority;and use less abor intensivemeansofproducing he er-vices.These differentabor practicesresulted n laborcost savingsfortheprivate ontractors.7he rigiditiesof civilservice ystems nd thepowerof publicsectorlaborunionsmay erve s impedimentsosuchpracticesin the public sector.Thus, due to flexibilityn laborpractices, ontracting utmayreap mportantostsav-ings n labor-intensiveervices.

Finally,competition mong external roducerspro-vides ncentives o minimize osts. Ifthenumber f ex-ternalsuppliers s limited, hiscompetitions dimin-ished.Consequently,hecost savingsfrom ontractingoutare likely o be reduced.8Although here svarianceacross services,we expect that argergovernmentsn-counter greater vailability f external roducers ueto theirmoredeveloped ocal economies.Hence, theyaremore ikely o realize ostsavings hroughontract-ingout.Thus, this nalysis fthe ources fthepotential ostsavings o external roductionuggestshatbothsmall(due to scaleeconomies) nd large duetomore xternaloptions)governmentsremore ikely ocontract ut forall services,mplying u-shapedrelationship ithuris-diction size. In addition, serviceswhich have largeequipment and material requirements, re labor-intensive, nd have capacityutilizationproblemsaremore ikely o be contracted ut.The price of thesecost savingsmaybe reducedcon-trol. Contracting ut reducesthe local government'sability o managetheservicedelivery rocess,therebypotentially threatening the continuity of servicedelivery,heservice uality, nd theability o achievedistributionalbjectives.9 lthough he mportancef aparticularontrol oncern ariesby ervice, omeaspect

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of control s likely o be of concernformostservices.We consider ach of thethree spects n turn.Servicediscontinuityan be a problemwhetherheproduction s internalor external. A service withastrong ublicunionmaybe particularlyulnerable, utthevulnerability ayalso be presentwith xternal ro-ducers fonlyone or a fewprivate uppliers xist.Jointproductionmaybe thebestalternativef service on-tinuitys an overwhelmingoncern. n thiscase, eachemployeegroup insuresto some extent gainstworkstoppagebytheother.Therefore,f ervice isruptionsparticularly armful, .g., publicsafety ervices, henjoint productionprovides ome of thecost savingsofcontractingutwhileprovidingomeprotectiongainstservicedisruption.The governmentdecides whetheror not tocontractout and then chooses withwhomto contract.

To some extent,loss of quality control can beminimizedhroughhe pecificationfthe ontractndsubsequentmonitoringf theproducer'sperformance.Obviously, f the serviceoutputscan be precisely e-fined, contract an be writteno ensure ervice ual-ity.'"Two dimensions f service utput ffect ontractspecificationnd the abilityto monitor.The first stangibleness. or serviceswithtangibleoutputs, t ismucheasierto write contract pecifyingervice ut-put.The second sproduct omplexity.fa producthasmany dimensions,some of which are difficult odelineateot define n a contract,t is likely o be dif-ficult omonitorffectively.hemore omplex hepro-duct,thebetteruited t s topublicproduction. onse-quently,governmentsre more likely o contract utservices hatcan be easilymonitored,.e., services hathavetangible nd simpleoutputs." On a moregeneralbasis, contracts re easier to negotiateand monitorwhen erviceneedsofcitizens resimilar.Disputesoverservice utputs re less ikely oarisewhen here s rela-tivelymallvariationncitizen emands.Therefore,weexpectgovernments ith homogeneous ocal popula-tion to be more likely o contract ut forservices ngeneral.Finally,the abilityto achieve distributional oals,suchas increasedminorityiring rtargeted enefits,sless certainthrough ontractspecification.Althoughsuchgoals maybe writtenntothecontract, roblemsmayarise. Borcherding1983) arguesthatthere re atleast two important oliticalliabilities o contractingout if redistributionoals are important.First, theopennessof the contractual rrangementmay createproblems nthe ourts ndiscriminationrounds.'2 ec-ond, publicproduction s moreselective. t can tailorbenefits o politically worthy"groups.Privatefirmsare likely odole outbenefitss cheaply s possible,notina politicallyptimalway.To the xtentuchdistribu-tionalgoalsare mportant,heprospects or ontractingoutdiminish.


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334 PUBLIC ADMINISTRATION REVIEWLocal governments hus must assess the efficiencygain as comparedto the oss of control o determinefcontractingut is a viableproduction lternative. er-tainservice-specificharacteristics,owever,may over-ridethisefficiency/controlradeoff.We considerhereone of the more mportant; rivate roductionmay, nsome cases, inherentlyntail an importantocial cost.

For example, moral hazardarises ftheprofitmotivedrivesfirms o behavein a manner hatconflictswiththe ocial nterestBaumol, 1984).Clearly, his sservicespecific.For example, rmedforces hould be publiclyprovided, therwise n unemployed rivate rmymightcreate a demand for its services;similarly, therex-amples are tax collection nd the legal systempoliceandcourts).With uchservices,moralhazardmaybe soimportant hatremovalof theprofitncentivehroughpublicproduction s necessary.3The mainadvantageof contractingut isthe potential efficiencygain, i.e., costsavings.The extent o which local governments willing oconsider the tradeoffbetweenefficiencynd controldependson fiscal onditions nd politicalforces.Theseinclude cost-reducingncentives, itizendemand forhighquality ervices, ervice onstituencytrength,ndpublicunionopposition.Constituencyresistance to higher taxes createspressure for public officialsto lower the cost ofservices.'4 herefore,ncities nwhichpolitical pposi-tion to highertaxes or actual legal limits on taxingauthorityxist,wewouldexpectmore ontractingut ngeneral.Also, state and federalfundingmay promotelocal cost-reducingnnovations.'5n addition, a poorcommunitymaybe unable to afford nternal roduc-tion. If contracting ut produces servicesmore effi-ciently, oorercitiesmay haveto contract ut inorderto afford them. These incentives nd/or constraintswork to increase the efficiency wareness of localgovernments nd to encourage them to seek cost-reducinghanges ngeneral.Obviously, ontractingutis onlyone option,but we would expect ocal govern-mentsthat face these ncentives o contract ut moreoften han othergovernments.In additionto constituency emandsforefficiency,citizen emandsforhigher uality ervicesmayresult ncontractingut. Lindsay 1976) arguesthat thepublicsectordeliberatelyupplies lower ualityproductat alower ost)than heoneprovided ntheprivate ector.6Ifthis s the ase, localitieswouldseekthehigher ualityoutput nly fconsumers emand t. This is more ikelyto occurwithhigherncomeconstituencies. o the ex-tent hathigher ualityof publicservicess important,weexpect hat hewealthierurisdictions remore ikelyto contractout. Given the previousargument boutpoor communitiesontractingut moreoften, herela-tionshipbetweenwealth nd contracting ut may wellbe u-shaped.There re,however, oliticalforceswhich ountern-

centives ocontract ut.Thesederive rom wosources.First, onstituents aypreferocal production. itizensmayperceive hatgovernmentas a higher ommitmenttotheprovision fthe ervice f tproduces t n-house.As services re contracted ut, theymaybe viewedasbeingmoreexpendable.Therefore,o theextent hatservice onstituencys an important oting omponentof the ocal government, ewouldexpect esscontract-ingout in that ervice.The second obstacle to contracting ut is publicemployeeresistance. ince contractingut reduces hesize of public organizations,we would expectpublicunions o resist t.Obviously,publicemployeeswhoarelikely o lose their obs as a resultof contractingutproposals will oppose them.' The importance f thisobstacle dependson the strengthf public employeeunions. This strength an be general and/or servicespecific,.e., publicunions anrepresent largepropor-tion of the workingpopulation of a communityndthus ffect ontractingutingeneral, ronlyparticularserviceunionsmay be powerful nd onlyaffect on-tracting ut decisionsfortheir ervices.To summarize,we expectthe extent f contractingout in local governmentso be determinedy boththedegree o which ontrolmustbe relinquishednorder oachievean efficiency ain, and thewillingness f thelocal government o consider this tradeoff.Conse-quently,weexpect ontractingut tobemoreprevalentinsmaller nd larger ommunities,ncommunities ithcost reducing ncentives,n wealthy nd poor com-munities,nd inthosewith lowproportion funion-ized publicemployees. n terms f specific ervices,weexpectmore contracting ut for serviceswhichhavelarge quipment ndmaterial eeds, apacity tilizationproblems,or easily-monitoredutputs and also forthosewhich re laborintensive,nwhichdistributionalgoals and moralhazardconcerns renot mportant, rin whichconstituencyesistancend publicunionsarenotstrong.

Analysis fDataA recenturvey f ocal service eliveryrrangementsprovides n opportunity o demonstrateheusefulnessof thismodel in explaining hecurrent attern f pro-duction hoices.BetweenMarchand June1982,the n-ternationalCity Management Association (ICMA)surveyed ities and countiesacross the UnitedStatesaboutwhat ervices hey rovide nd howthese ervicesaredeliveredocitizens. he surveywassent othe hiefadministrativefficers f 4,700 local governments. llcitieswithpopulations f 10,000 and overand countieswithpopulationsof 25,000 and over were surveyed.Governmentsnderthesethresholdswereselected t arate of 1 in 8. Of the surveys ent,1,780 38 percent)werereturned; ,433werecities nd 347werecounties.The survey enerated ataon44 services rovided orcitizens.These servicescover four broad functionalareas: publicworks,public safety,healthand humanservices,ndrecreationndarts.'8 erviceswhich epre-

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CONTRACTING OUT 335sent a smallpercentage f a government's udgetareveryuncommon, re designed o promote quality oflife" e.g., openspace),or arealmost lways ontractedout were not included. The respondentswere askedwhether r not theirgovernmentwas responsibleforprovidinghe ervice. fyes, hemethod rcombinationof methodsused in service eliverywas identified. enmethodswere pecificallyncluded n thequestionnaire,including ublic mployees,ontractingut,volunteers,etc.Thesurveylso distinguishedifferentypes fcon-tractors: other governments,for-profit irms,andneighborhood r othernonprofitrganizations.'9Fromthis xtensiveurvey f service eliveryrrange-ments,we were ble to examine hepatternsf contract-ingoutfor widevarietyflocal services.Based on therawsurvey ata, we calculated therelative requenciesof three roductionhoices: nternal,oint,andexternalfor 25 of the44 services.20he criteria sed to selectthese25 serviceswerediversityf outputs,representa-tiveness f the functional rea, and budgetary mpor-tance.2'Based on theservice pecificvariables dentifiednour productionchoice model, we should be able topredictwhich erviceswillbecontractedut most ften.We consider hedegreeto which nputcharacteristics,capacity utilization problems, service disruption,monitorableutput, mportant istributionaloals andmoralhazardconcerns, ndgeneral xternal roductionoptions affect the decision to contract out. Thisanalysis,due to lackof data, does not addressthe roleofspecific xternal roduction ptions rpublicunions.The firsttep of our data analysis s theclassificationofserviceswith espect o thesevariables.We then on-sider he actual incidence fcontractingutbyservice,revealed n Table 1. To simplify hediscussion, he 25services n our sample are grouped nto the followingfourfunctional ategories: ublicworks; publicsafety;health nd humanservices; nd recreationnd arts.The publicworkscategory ncludesseven services:residentialolidwaste ollection, treet epair, ree rim-ming/planting,emeterydministration/maintenance,bus systemperation/maintenance,aratransitystemsoperations/maintenance,nd streetight peration. ngeneral, ervicesnthis ategory avetangible utputs.It is relativelyasyto specifyutput nd, insomecases,quality fservice.There s, ingeneral, ood availabilityof privatefirms hatcan deliver heservices.Many ofthese ervicesrelabor ntensive,mplyinghat ubstan-tial aborcostsavingsmaybepossible hroughontract-ing with the privatesector.There are no importantdistributional oals or moral hazard concerns. Wewould expect,therefore,ubstantial ontracting ut inthese ervices, nd indeed hat swhatweobserve.Table1 reveals hatover30 percent f thecities ontract uteither otally r inpartforresidential astecollection,street epair, nd tree rimming/planting.orethan60percent hose to contract ut forbus, paratransit,ndstreet ightoperation.Cemetery dministration/main-tenance s theonlyexceptionwith18.6 percent f thecities ontractingut. Lookingatcounties, ver50 per-

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centcontract ut forresidentialwaste,cemetery, us,paratransit, nd streetight ervices.The other woser-vicesalso reflectonsiderable elianceover20 percent)oncontractingut.Unlike ities, ounties requitewill-ingto contract ut forcemeteryervices, 0.7 percentchose some formof contracting ut. It may be thatcounties have more externalproducer ptionsforthisservice.Theextent o which local governmentswilling o consider the tradeoff etweenefficiencynd controldepends on fiscalconditions nd political orces.

The public safetycategory ncludes five services:crimeprevention/patrol,ireprevention/suppression,emergencymedicalservice EMS), ambulance service,and vehicletowingand storage.Unlike the previousgroup,considerabledifferencesxistacross servicesnthis ategory. atrol and fire ervices an be regardedssomewhatdistinct romtheother three. n these ser-vices,moralhazardconcerns re important. he publicmaybe concerned hatwith externalproduction, ostconcernsmaydecrease hevalueplacedon saving ives.Nevertheless, artsof theseservices an be contractedout, e.g., police training nd special eventspatrols.Since bothpatrol and fire ervices ufferntermittentdemand, calesavingsmaybe important ith espect ocapacityutilization.Withtheremaining hree ervices,EMS, ambulanceservice, nd vehicle owing, he evelof service s easierto specify,.e., theoutput s simplerand moretangible. n general,externalproducers reavailable.Theseservices lso have ntermittentemand.Servicedisruptions less of a concern hanwithpatroland fire ervices, ut t s still uite mportant orEMSand ambulanceservices.We would expect,therefore,some contracting ut in all theseservices,but muchmorein the latter hree. n Table 1, we observethatcitiesrarelyontract orpatrol nd fire rotection; heycontractmoreoften forEMS, ambulance and vehicletowing. n fact,forvehicle owing,whichhas an easilymonitorableoutput withoutservicedisruptioncon-cerns,weobserve hat88.9 percent f the ities ontracteither olelyor jointly.Countiescontractmoreoftenthancities.Again, thismayreflectmoreexternal p-tions.Over40 percent f thecountiescontractforalltheseservices xceptcrimepatrol,and therelianceoncontractingorvehicle owing s again strikingt 81.3percent.We observemore oint, as opposed to pure,contractingutfor rime atrolbyboth ities ndcoun-tiesand forfireprotection ycounties.The health nd human ervices ategoryncludesnineservices: animal shelter operation, daycare facilityoperation,child welfareprograms,programsfor el-derly,operation/managementf public/elderlyous-ing,operation/managementf hospitals,publichealthprograms, drug/alcohol treatmentprograms, andoperation of mental health/retardation rogram/facilities. heseservicesngeneral o not havetangible,


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336 PUBLIC ADMINISTRATION REVIEW

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CONTRACTING OUT 337easy to measure utputs. t is oftendifficultomeasureperformance,articularlyualityof service.Also, theconstituencies f some of these servicesfeel thattheyshould be produced n-house o avoidthe ppearanceofexpendability,.g., programsforthe elderly.On theotherhand,there reoftenmany lternativeroducers,particularly,ut byno meansexclusively,n thenon-profit ector. n addition, hese ervices re labor nten-sive, so importantabor cost savingsmaybe achievedthroughontractingut due tomoreflexibleaborprac-tices.Given the wideavailabilityfchoice and substan-tialpotential ost savings,we would expect ignificantcontractingut inthese ervices.22his is despitepossi-ble constituencyesistance nd the ntangible ature ftheservice.This latter roblem s probably essenedbythe use of imperfect, ut possiblyacceptable,outputmeasures uch as number f peopleserved.In Table 1weobserve hat ver30 percent f all citiescontractout, jointlyor solely,for all theseservices.Animal shelters contracted ut significantlyess thantheothers, nly 31 percent s opposed to 70-80percentfordaycare,public housing,hospitals,public health,drug/alcohol, and mental health. This may reflectlimited vailability f contractors.Jointproduction spreferrednly withprograms ortheelderly, ut it isalso usedextensivelynchildwelfare, ublichealth, nddrug/alcoholprograms. n the case of public healthprograms, hismayreflect particularoncern or ocalcontroland servicecontinuity.Withthe otherthree,there re likely o be constituencyoncerns bout com-mitmento the ervice; ll three ouldberegardeds ex-pendable. Joint roductionmay alleviate omeof theseconcerns.The pattern f contracting ut forthese er-vices s similar orcounties, lthough ounties ontractsomewhat ess frequentlyhancities.Finally, herecreationndarts ategoryncludes ourservices:recreation ervices, rts programs, ibraries,andmuseums.Theseservices averelativelyimple ndtangibleoutputs.Distributional oals, moralhazards,and servicedisruption re not likely o be important.With recreation ervices,demand is intermittentndseasonal;thus mportantapacityutilizationavings relikely n both abor and equipment.With ibraries ndmuseums, apacityutilization avingsare likely o beimportants well. n artsprograms,which re labor n-tensive, ostsavings romaborpracticesre ikely obeimportant.Recreationservicesand libraries re pro-vided by manymore governmentshan are arts pro-gramsand museums.This suggests hatsome of thegovernmentsrovidingheformerervices ace imitedexternal ptions.23 iventhepotential ostsavings ndno serious constraints, ontracting ut should be aviableoptionfor he erviceswhichhaveavailableexter-nal producers. n Table 1 we observe hatover 40 per-cent of thecities n thissamplecontract ut fortheseservices, xceptforrecreation28.8 percent).As ex-pected, he xtent fcontractingut is lower n ibrariesand recreation ervicesthan in arts programsandmuseums,probablyreflectinghe oweravailability fchoice. In all these ervices, ounties ontract utmorethancities,ranging rom lowof36 percentnrecrea-JULY/AUGUST 1986

tionservices o a high f86.7 percentnartsprograms.Jointproductiondominates n recreation ervicesforcities nd counties nd inartsprograms or ities.Thismayreflecthemultipleutputnature fthese ervices,withsome outputsbeingprovided n-house nd somebeingcontracted ut.To summarize,what clearly emerges from thisanalysis is that no one characteristic ominates inpredicting ontracting ut usage. Tangibleness andsimplicity f output reclearlymportant ariables,yetthe healthand human serviceswhichhave the mostcomplexand "softest" outputare heavilycontractedout, e.g., fourof theseservices re contracted ut byover75 percent fcities.Several xplanationsrepossi-ble. First, uality s an importantomponent foutputfor hese ervices,nd insomecases,this ualitymaybebetter chievedthrough ontractingut. Second, theseservices retypicallyvailable ntheprivate ector, ndthismay contribute o the highuse of externalpro-ducers.Finally,these ervicesmay,as their upportersfear,be regarded s moreexpendable nd thusmaybemorereadily ontracted ut.24SectorChoiceModel

Given the decision to contractwith an externalorganization or theproduction f a service,does thelocalgovernmentontractwith ther overnments,ithprofit-makingirms, rwithneighborhoodnd/ornon-profit rganizations?25ince theusual presumptionsthatthe private ector s the most efficient roducerceteris aribus,ourdiscussion s organized roundwhya local governmentmightpreferto contractwithanothergovernmentr with a neighborhood r non-profit rganization s opposedto a private irm.ContractingithAnother overnment

The decisionto contractwith nothergovernmentsusuallyviewed as a technologicallyriven hoice; onederived rom conomies-of-scale. ypically, mallcitiescontractwithnearbyarger overnmentsoachievepro-ductionscale savings.Why,however,do thesecitiescontractwithothergovernmentss opposed to privatefirms?26Recall that hescaleeconomieswhich remost ikelyto be relevant o the contracting ut decisionderivefrom quipment nd material ost savingsand highercapacityutilization.The keyfactor n exploitingcaleeconomies ssizeratherhan ector.Either argegovern-ments or large private firms could obtain thesesavings.27hus,with espect oscalesavings, here snoinherent easonwhygovernmentshould prefer on-tracting ith thergovernmentsvertheprivate ector.Nevertheless,f larger ervice rea isrequired oattainscale economies nd thecountyor a larger ity) s cur-rently upplyingthe service,other governmentsreviablealternatives.28malland isolatedgovernments,nparticular,may ackprivate ectorproducers ormanyservices. ormost ocalities,however, his sa short-runargument.As more ocal governmentseekto contract


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338 PUBLIC ADMINISTRATION REVIEWfor ervices,we wouldexpectmoreprivate uppliers oenter he relevantmarkets.A second factorthatmightencouragecontractingwithothergovernmentss the desireforcontinuityfservices cross jurisdictionswithin geographic rea.Substantial differences n service quality within ageographic reamaygeneratemportant egative xter-nalities.Forexample, ualitydifferencesmongrecrea-tion areas could cause overloads n the better acilities.Withservices uch as parksand recreationwhere on-sumers go to the service,it is difficult o enforcejurisdictionalboundaries. In addition, some servicessuch as busesrequire n integratedystem o function.For these ervices, citymaywantto contractwith hecounty or a larger ity) o ensure imilar ervice evelsor minimumtandards hroughouthearea.No one characteristic ominatesnpredict-ingcontractingutusage.

A finalfactor hatwouldencourage ontracting ithothergovernmentss a legalconstraintwhichprohibitsprivateproduction.For example,the powerof arrestusually cannotbe givento a privatefirm. tatesandlocalities ary ubstantiallyntheiregalconstraints,utwhereoperative, heseobviouslydeterminehe sectorchoicedecision.29On the otherhand,governmentsre notlikely o bean attractive ption if the service s labor intensive.First, s previously iscussed,moreflexibleaborprac-tices ntheprivate ectoryieldpotentialaborcostsav-ings. Second, there is reason to believe that largegovernmentsavehigher ather han owerwagesthansmallgovernments.0To summarize, f thereare important cale econo-mies,wewouldexpect ontractingo be with hemostefficientvailableproducer.n many ases,this s likelyto be anothergovernment.n addition,othergovern-mentsmaybepreferredftheres a needfor onsistencyin service evel across several urisdictions nd/or ifthere s a legalconstraintgainstprivate ontractingorthe service. Finally, other governmentsre not, ingeneral, ttractiveptionsfor abor-intensiveervices.

Contractingith NonprofitrganizationConsidernowwhy local government ouldchoose

to contractwith nonprofitrganizations opposedtoa for-profit irm.The efficiency istinction etweenthese wosectorssnotunambiguous. heprofitmotiveinducesprivatefirms o searchforthe eastcostlypro-ductionmethods.On theotherhand,nonprofitrgani-zationsmaybe able to lower aborcoststhrough heuseof volunteers nd part-time ersonnel.Theymayalsosubsidizetheservicefrom therfunding ources,thuscharging essthan hefull osts. We shallnot,therefore,makeefficiencyssumptionswithrespect o thesetwosectorsbut will nstead xploreotherfactors hatmaydifferentiate hem. Specifically, under what cir-cumstanceswould we expect both theprofit nd non-profitoptions to exist? Does one sector tie more

naturallyo someservices hanto others, .e., arethereexistingieswithin sector o theproduction fthe er-vice?If nonprofitrganizationsxist hathavehistoricallyprovided service nd/or have tiesto theprovision fthat ervice, overnment aybe more ikely ocontractout with henonprofitectorfortheproduction f theservice.Consider the originsof these ties. Weisbrod(1977, ch. 3) hypothesizedhatnonprofitrganizationsare created as extra-governmental roviders ofcollective-consumption oods. With nonbenefittaxpricing, he evelof governmentrovision f collectiveserviceswillfallshortof thatdemandedbysomecon-sumers.One option for hese onsumerssservice rovi-sion bynonprofitrganizations. herefore,n thecaseofwidevariation nconsumer emand, heprovision fsomeservices y thenonprofitector s likely oprecedetheirprovisionbygovernment. his obviously ffectsthesector hoicesavailableto governments hich aterdecideto provide,butcontract ut, theservice.Fromanother erspective,ontracting ithneighbor-hood andnonprofitroupsprovides waytoreachper-sons nterestedntheprovision fthe ervice. orexam-ple, Pauly and Redisch 1973) argued that a necessarycondition or heexistence fnonprofit ospitals s thewillingness f individuals o contributequitycapital,thus suggesting neighborhood/politicalsupport.3'1Therefore,f a nonprofit rganization s available toproducetheservice, he ocal government ay prefertovera profit irm incethecommunityonnectionndsupport lready xist.Second, thenonprofitectormayprovidemorecol-lective, s opposed to individual, ervices,.e., thenon-profit ectorprovides servicemore ikethatprovidedbythepublic ector,while heprivate ector rovides nindividual ood substituteWeisbrod,1977).Therefore,theextent f "collectiveness"of theservice ffects herelative izeofthenonprofitector.Themore ollectivea service, hemore ikelyt s tohaveavailablenonprofitproducers.We wouldexpectgovernment,herefore,ocontractmoreoftenwithnonprofit rganizations orserviceswhich remore ollective ndwith rivate irmsfor erviceswhich re more ndividual.Finally, theremay be a constituencyreference ornonprofitroduction. ften itizens pposecontractingwitha privatefirm,based on a concernthatservicequalitywillbe jeopardized.This is particularlyrueforhealth and human services Valente and Manchester,1984,p. 128).Moreover, heremaybeconcern hat arefor hepoorwillbe threatened. o someextent,are forthe poor can be specifiedexplicitly n a contract,regardlessfsector hoice,butspecifyinghequality fthat areismoredifficult. here s,however, percep-tionthatnonprofit rganizations rovidehigher ual-ity. For example,Newhouse (1970) arguedthatnon-profit ospitals rebiasedagainst conomy arebecausehigher uality ervice nhances heir restige.fcitizensbelievenonprofits rovidebetter uality,governmentmay prefer o contract withnonprofit rganizationswhen they are available, especially for health andhumanservices.

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CONTRACTING UT 339To summarize,eexpectocalgovernmentsopreferto contract ith henonprofitector ver heprivatesectorf hat ector as a historyf ssociation ithheservice. his association an derive rom riornon-profit rovisionf the ervicerfromhe xistencefcommunityupport.n addition,weexpect greaterpreferenceor ontractingithhenonprofitectorhe

more ollectivehe ervicend/or hemoremportantqualityndaccess onsiderations.Analysis fOrganizational/Sectorata

The incidence f localgovernmentontractingithdifferentectorscross ervicesanbedeterminedromthe CMA data.Therefore,ecanconsider ow wellthe ervicepecific eterminantsfsector hoice den-tifiedn ourmodel xplain hatdecision. he sectorchoicemodel uggestshefactorso be consideredn-clude aborntensity,cale conomies,heneed or tan-dardization,hedegree fcollectiveness,constituencypreference or nonprofitroductionn health ndhumanervices,ndthepreexistencefnonprofitro-ducers.The firsttep n ouranalysis, herefore,s aclassificationfthe ervicesccordingothese actors.

Weusethe ame25 serviceselectedntheproductionchoice nalysis.32Table2 presentshe lassification.hefirstolumndenoteswhetherrnot he ervices abor ntensive.nthecase of labor ntensiveervices, eexpect, eterisparibus, preferenceor heprivateector.33hesec-ondcolumn ecordsheneedfor large calefor apa-cityutilization,itheraboror capital.Basedon thisfactor, heparticularector hoicedepends n theavailabilityf arge-scaleroducers.ormanyervices,thiscreates preferenceorcontractingithothergovernmentsuetotheirvailability.-Thehirdolumnrecords heneedforstandardizationcross urisdic-tions. f important,t shouldencourage ontractingwith ther overnments.he astthreeolumns epre-sent actors hich avor ontractingithhenonprofitsector: ollectivenessfthe ervice,ategorizations ahealth rhuman ervice,ndthepreexistencefnon-profitrganizations.f at least wooutofthese hreeare affirmative,e expect ignificantontractingutwith henonprofitector.Weturn ow o a discussionofthe ervicesndthe bservedectorhoices. able3reportsherelativerequenciesfsector hoice othergovernments,rofit,onprofit)y ontractingovern-

TABLE2ClassificationySector-ChoiceactorsHighDegree PreexistenceLabor LargeScale Standardization of Healthor ofFunctions Intensive Required Required Collectiveness HumanService Nonprofit

Public WorksResidentialWaste Y Y N N N NStreetRepair Y Y Y Y N NTreeTrimming/Planting Y Y N Y N NCemetery Y N N Y N YBus N Y Y N N NParatransit N Y N N Y YStreetLightOperation Y N N Y N NPublic SafetyPatrol Y Y Y Y Y NFirePrevention N Y Y Y Y NEMS Y Y Y N N NAmbulanceService Y Y N N N NVehicleTowing N Y N N N NHealthandHumanServicesAnimalShelter Y N N Y N YDaycare Y N N N Y YChildWelfare Y N N Y Y YPrograms orElderly Y N N Y Y YPublicHousing N Y N N Y YHospitals Y Y N N Y YPublicHealth Y N Y Y Y NDrug/Alcohol reatment Y N N Y Y YMentalHealth Y Y N Y Y YRecreation ndArtsRecreation ervices Y Y Y Y N YArtsPrograms Y N Y Y N YLibraries N Y Y Y N YMuseums N Y N Y N Y

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340 PUBLIC ADMINISTRATION REVIEWments.Again, for ease of exposition, hediscussion sbythefourbroadfunctional reas: publicworks,publicsafety,health nd humanservices, nd recreationndartsservices.One would expect general factorsto affecta local government's production choicedecision more thanits sector choice.

Most of thepublicwork ervices re laborintensive,indicating potential orcost-reductionycontractingwith heprivate ector.Most also offerarge-scale av-ings through apacityutilization, itherderivedfromseasonal or intermittentemand tree-trimming/plant-ing,paratransit) r from quipmentusage (bus, streetrepair).Standardizations notlikely o be very mpor-tant xceptwithbusservices nd street epair.Mostser-vicesdo not tieeasily to thenonprofitector.The twoexceptions recemeteryndparatransit;nbothcasesitis likelythatnonprofit rovisionpreceded or at leastsupplemented ublicprovision.Considertheobservedsector hoicespresentednTable 3. Theprivate ector sthepreferredxternal roducerformanyof these er-vices.Citieshavethemajority ftheir ontractswith heprivate ector o deliver esidentialwaste, street epair,tree trimming/planting,emetery,and street lightoperation.Nonprofit roducersreonlyheavily sedbycitiesfor emeteryndparatransitervices. his sas wepredicted, nd the patternholds forcounties s well.Othergovernmentsrethepreferredontractornlyforbus service.This probablyreflects oth the need forstandardization cross jurisdictions nd the potentialforscale savings. If standardizations important orstreet epair, s weconjectured,hispreferenceppearsto be dominatedbythepotential ost savingsof con-tractingwithprivate uppliers.Now consider hepublicsafety ategory.These ser-vices,withtheexception f vehicle owing,face inter-mittentdemand. Thus, there are potentialcapacityutilizationcost savings with large-scaleproduction.Standardizations likely o be importantnpatrol,fireprevention,nd EMS, and thusweshouldobserve on-tracting ith ther overnments.atrolandfire reven-tionare collective ervices nd so we expect omenon-profit roduction. inally, rivate roductionhouldbehighest nvehicle owing,with ts calesavingspotentialand without haracteristicshatencouragecontractingwith ither henonprofitr othergovernmentectors.Turning to Table 3, we find that no one sectordominates ontractingnthepublicsafety ategory.Asexpected, ities nd counties verwhelminglyreferheprivatesectorforvehicletowing.They also contractmostoftenwith hat ectorfor mbulance ervices, utcontracting ithothergovernmentss substantial. hislatter hoicemayreflectimited xternal roducer p-tions.Most citiesand countiesprefer o contractwithothergovernmentsorEMS, but all three ectors reused. Finally,mostcitiesand countieschoose to con-tractwithothergovernmentsorfirepreventionbut

withsubstantialuse of nonprofit rganizations) ndwithnonprofit rganizations orpatrolservices withsubstantialuse of othergovernments). robablyverydifferentomponents f each of thesetwoservices recontractedwith differentectors. For example, theessential rrest nd fire ontrol utputs re ikely eld nthepublicsector i.e., produced n-house r contractedwith thergovernments). owever,neighborhood ro-grams, uch as neighborhoodwatch,mayaccountfortheuse of thenonprofit ector npatrolservices.Considernexthealth nd human ervices. he strongtieswiththe nonprofitectorforall theseservices sclearlyreflected n Table 2. We may also observesubstantial ontractingwithothergovernments,incescale savings may be possible for public housing,hospitals, nd mentalhealth, nd standardizationmaybe important orpublichealth.Despite the abor nten-sivenatureof theseservices, henonprofitectormayhavea competitivedgeovertheprivate ector uetoitsheavyuse ofvolunteersnmostofthese ervices. urn-ingto Table 3, we observethatcitiescontract ver40percentof the timewiththe nonprofit ectorforallthese ervices, xcept nimalshelterndpublichousing.Contractingwithothergovernmentss the dominantchoiceforpublichealth, nimalshelter, ublichousing,andchildwelfare. heremaybefewer onprofithoicesfor nimal helterervices. cale savingsmay ncouragecontracting ith arger overnmentsorpublichousing,and the need forstandardization n public healthnodoubtcontributesothispreference.inally, omecom-ponents of child welfare services involve transferpaymentswhich ocal governmentsannot ontract ut.The onlyhealthand humanserviceswithsubstantialprivatesectorcontractingre daycareand hospitals.These services re more "individual" in naturethanothersnthis ategory. onsequently,heprivate ectormay compete more activelyin these services. Thegeneralpattern orcounties s similar o thatof cities.Consider,finally,herecreationnd arts ervices.Asa groupwewouldexpect hese ervices ohaveavailablenonprofitroducers.ndeed,Weisbrod'sundersatisfieddemandargumenteemsparticularlyppropriatehere.We wouldexpect hedemandforthese eisure-orientedservices o be importanto a minorityongbefore heyarefor hemajority;ndprovision ythenonprofitec-torwould be a likelymeansto satisfy hisdemand.34These services endto be collective s well.Books maybe loanedtomanypeople,althoughnot imultaneously;artcan be viewedbymany, tc.Also, there s a benefitto having heseservices vailablewhich s independentof thedirectconsumption enefit.The private ectormayfind tdifficulto competewith henonprofitec-tor nthis reawith ts raditional seofvolunteers,ndthe availability at least in the past) of some grantswhich n effect llow nonprofit rganizations o sub-sidize production of the services. Nevertheless,wewould expectprivateoptionsto be available in somelarge,urbanareas.Severalcharacteristicslso promote ontracting ithothergovernmentsor hese ervices. orrecreationer-

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CONTRACTING OUT 341

11 Fo ooto -om otm >t? oocsofi ooofi Oes> oonofi oyofi? t~~~~un unscs -(

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342 PUBLIC ADMINISTRATION REVIEWvices, ibraries,nd museums,arge-scaleavings relikely o be important.twouldbe difficultor mallcities o ustifyibrariesnd museumshat nly ervicetheir onstituencies.ith easonal emand or ecrea-tional ervices,heremay e mportantabor tilizationsavings o arger-scaleperations.ormost f heseer-vices, tandardizationight e mportanto discourageuse across urisdictions.herefore, e wouldexpectboth ubstantialonprofitndother overnmenton-tractingnthese ervices.We are ess ikelyosee othergovernmentsn artsprogramsndmore ikely o seeprivate roductionn recreationerviceswiththeirpotentialabor cost savings. n fact,we generallyobserve hesepatterns. he preferredontractor orcitiessthenonprofitector or llthese ervicesxceptlibrariesand evenhere ver 0 percentf the ontractsarewithhis ector). or ibraries,oth ities ndcoun-ties ontractmostfrequentlyith ther overnments.Manynonprofitibraries ere reateds specialnterestlibrariesWeisbrod, 977,p. 156),and thus heymaynotbegoodsubstitutesor ountyibraries. lthoughprivate roductionsused o some xtentnrecreationservicesnd artsprograms,henonprofitectorhasclearly een hedominantector hoice or his roup.In summary,he ervicepecificharacteristicsereon thewholemore uccessfultexplainingector hoicethan heproducerhoicedecision. his snot urpris-ing.Onewould xpect eneral actorsoaffect localgovernment'sroductionhoice ecisionmore han tssectorhoice. his atter ecision ependsnherentlynthenature f the ervice,ince hehistoryf the erviceand itscharacteristicsetermine hich xternal ro-ducerswillbeavailable. urthermore,ewould xpectsector hoice redictionsoimprove ith etterervicespecific nformation.Conclusion

When financiallyqueezed ocal governmentse-examineheirmethods fdeliveringervices,ontract-ing is usually hefirst ptionconsidered. lthoughstudies avedemonstratedhe costefficiencyf con-tractingutfor everal ervices, ublic fficials avebeen eticentbout doptinghis pproach, earingossof control nd politicalrisks.However, s fiscalpressuresontinueo mount,t s importanto under-stand he ircumstancesavorableo the ffectiveseofcontractingut. nthis aperwe havedeveloped con-

ceptual rameworkoanswerhe uestions:ontractingoutforwhat?ndcontractingutwithwhom? hiswasaccomplishedy nalyzinghedecisionocontractutin twostages: heproductionhoiceand thesectorchoice.We used his rameworkopredictndsubsequentlyexamine he actualpatternsf contractingut withrespect o both heproductionnd thesector hoice.This analysis was restricted o service specificcharacteristics.he sectorchoice modelperformedmuchbetterhantheproductionhoicemodel, ug-gestinghat he ritical actorsnfluencinghe hoice e-tweennternalnd externalroductionrecommunity-levelfactorsuch s fiscal tress, oliticalentiments,andgeneralvailabilityfcontractors.35n theotherhand, t appears hat hemore mportantactorsndeterminingithwhichector hegovernmenthoosesto contract rethe servicepecificttributesuchaslabor intensity,ollectiveness,tc. Nevertheless,henext tep nthe nalysis fthis ssue hould e a multi-variatenalysisfbothmodels. richernalysishouldincorporateoth eneralommunityharacteristicsndservicepecificttributes.In conclusion, e thinkhat hedevelopmentfthetwo-stage odel fproductionhoice ndsectorhoicewill e helpfulo the nvestigationfcontractingut nboth heoryndpractice.heframeworkhould elp oexplain heheterogeneityfpublic ervice roductionmodes crossgovernmentsndservices,s well s thepatternsfsectorhoice. n addition,hemodel fthedecision ocontractut hould idpublic fficials ho,confronted ithcost reducingncentives,re con-templatinghifting,nwhole r npart, oexternalro-duction fservices.tshouldnformheir eliberationsabout which ervicesreamenable o contractingutand nwhichectorosearch or ontractors.

Jameserrissassociate rofessorfpublic dministra-tion at theUniversityf Southern alifornia.Hisresearchnterestsnclude emands or ublic pending,public mployee ensions,nd alternativepproachesto public ervice elivery.Elizabethraddysassistantrofessorfpublic dmin-istrationt theUniversityfSouthernalifornia. erresearchnterestsncludehe conomics fregulation,innovationndmarkettructures,ndcontractingut.

NotesWe aregrateful oJohnKirlin,GaryReid, and anonymous eviewersforhelpful omments nd suggestions.JamesFerriswould like toacknowledge the financialsupportof the University f SouthernCaliforniaFacultyResearch nd Innovation und.1. We emphasize hat ontracting ut is not a newservice eliveryarrangement.nstances fcontractingut canbe found hrough-outhistory.

2. One of theearliest xpositions f thesenotions an be found nBish andWarren 1972).3. We assume that hedecision oprovide i.e., finance) he erviceis made previously nd independently f theproductiondeci-sion.Therefore,wedo notexplicitlyddress hedeterminantsfthemix and quantity fpublicservices emanded nd suppliedina community. omeofthe amefactors hat ffect heprovi-sionchoice,however,mayalso affect heproduction hoice.

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CONTRACTING OUT 3434. In thispaper,unlessotherwise oted, fficiencyefersocostef-ficiency.5. Borcherding,t l. (1982) surveyed ver50 studies xamininghecost effectivenessf theprivateproduction f public services.These studies covered 19 different ervices ncludingutilities,refuse ollection,hospitals, nd housing.Forty f these tudiesfoundprivate roduction o be cheaper hanpublicproduction;three oundpublicproduction o be cheaper;and fivefoundno

significant ifferences.n concluding hatprivate roduction scheaper, heauthorsnoted that he costdifferences iminish scompetition n thepublicsector ncreases.6. Labor inputprices renot ikely oyield calesavings, .e., largeproducers o notnecessarily ave smallerunit abor costs thansmallproducers.7. Evidence s to whether r notsubstantialwagedifferencesxistacrosssectors s inconclusive.ketchyvidence uggests hatforlargegovernmentsocal public employees re compensated tleast as wellas private ector mployees.Availabledata, limitedto larger ocal governments,ndicate ittledifference etweenlocal publicsector nd private ectorwages Smith,1981). This,coupledwith heevidence f relatively enerousnonwagecom-pensation for public employees,suggeststhat theremay besignificantompensation ifferentialsetween heprivate ectorand large ocal governments.nfortunately,ven ess is knownabout smallgovernments.8. Clearly,sole sourcecontractingmaynot result n lowercosts.Contractingutdoes notbreakmonopoly owerbymerelyhift-ingproduction rom hepublicto theprivate ector.For exam-ple, defense ontractingmaynot ead to competitionnd lowercosts.9. Although he foregone ost savingsfrompublic production soften eferredo as "waste," Borcherding, tal. (1982) suggestthat hismay be a misnomer,.e., publicproductionmay be anefficient ayto maketransfersnd achievedistributiveims.10. Ecodata (1984), a contractor ith heU.S. Department fHous-ing and Urban Development, n their tudyof largelypublicworks ervices, oundno significantifferencen thequality fservice rovidedbycontractorss compared omunicipal gen-cies. The services hey tudied,however,wererelativelyasytomeasure nd, hence,monitor.11. Addressinghese ssues from differenterspective,Williamson(1981) argued hat he essspecific he ssetsrequired odeliverservice, hemore ikelytwillbecontractedut,becauseof owercontractwritingnd monitoring osts. See Walkerand Weber(1984) for a private ectorapplication.Chackerianand Imer-shein 1984), however, na study f human ervices ontractingfoundtheopposite ofWilliamson'sprediction;morespecificityimpliedmorecontractingut.12. For a discussion fsuchproblems n the ocialservices rea, seeStraussman nd Farie (1981).13. In othercases, the contractcan be written uch thatmoralhazard s "contracted-away." ee Baumol 1984) for n exampleusingcoinsurance.14. Indeedtheseforcesmaybe thedecisiveones. As Savas (1979)notes, ocal governmentfficialsmaynotknow thetrue ostofservices. ost-reducingncentives,herefore, ayprovide n im-petusformorecareful xamination nd comparison fthecostsof differentroduction ptions.15. These are usually servicespecific. See Walker and Chaiken(1982) for discussion.16. See Lindsay 1976) for discussion fthevisibilityfquality if-ference etween hepublicand private ector.17. The importance f thisoppositionby n-houseproducers s ap-parentwhenone observes hattheperiod mmediatelyfter n-corporation s thetimewhen he doptionofalternativeso citydepartments s more frequent Miller, 1981). This is a time

before stakehasdeveloped nexisting ity epartments,s wellas a timeof fiscal oncern. n fact, onenblum, tal. (1977, p.64) argue that ubsequent o an initial hoice,fewfundamentalchanges n servicedelivery tructurere made. This, however,does not applyto all services.For instance, avas (1981) notesthat heseveral tudieswhichhave showncontract ollection fresidential refuse to be substantiallymore efficientthanmunicipal ollection aveencouraged ities o introduceontractcollection nd reduce theirpriorrelianceon municipal ollec-tion.Furthermore,herenewedttention ivenprivateector p-proaches opublic ervice eliveryuggestshatgovernmentsrereassessingtheir arrangements s their fiscal environmentdeteriorates.18. In addition,15support unctionse.g., payroll, ataprocessing,and legalservices)were ncluded.These are notconsideredherebecauseourmodelappliesto services elivered o citizens.19. For additional nformationn the urvey, ee InternationalityManagementAssociation 1983).20. Local governments hichdo not use public employees nd/orcontractingrrangementsut rather thermethodsuch as fran-chises are not ncluded n ouranalysis.21. The servicesnot selectedwere:commercial olid wastecollec-tion,solid wastedisposal,street leaning, nowplowing, rafficsignal installation/maintenance,etercollection, nspection/code enforcement,arking ots,airport peration,utilitymeterreading, utilitybilling, police/firecommunication, traffic/parking control, sanitaryinspection, nsect/rodent ontrol,animal control, recreationfacilitymaintenance, park land-scaping, nd conventionenters/auditoriums.22. In addition,recent rovisionsn federal nd stategrants ermitcontractingut by governments itheitherpublic or privateagencies for theseservices.For example,Benton,et al. (1978)found hatover 50 percent f services nderTitle XX were on-tracted ut.23. Approximately alfof oursampleare urisdictions ith opula-tions ess than25,000.24. The internal epartments andling hese ervicesmaybe weakerand lessentrenched.onenblum, tal. (1977) suggest hisnotionintheir elineation fcoreand optionalservices.25. Althoughwetreat he ector hoicedecision s distinct,tmaybeinterrelated ith heproduction hoicedecision.The two reob-viouslyrelated favailability f choicewas an importantactorinthe nitial ecision ndone sector ominated he vailableop-tions.Similarly,fone sector ffers articularostsavingswithrespect o theservice, hedecisionsmaybe interrelated.26. Especially, inceSonenblum, t al. (1977, p. 37) in theirnter-viewwith26 Californiacitymanagersfoundthatcounty on-tractswere evaluatedpoorlywithrespect o efficiency,espon-siveness, ercapitaexpenditures,uality fservice, nd qualitycontrol.27. Moreover, tmaybe possiblefor mall ocal governmentso ointogethern theprocurement fequipment nd materials, ivingthemmost of theadvantagesof large-scale urchasingwithoutlosing theadvantages f in-houseproduction.28. Mehayand Gonzalez (1985) foundthatthesupplyingounty salso more fficients a result f this rrangement.he threat fentry ythecity epartmentppears toconstrainmanagerialn-efficiencyythecounty upplying epartment.29. Atthe tate evel,many egalconstraintsimit rivate wnershipofprisons.Yet, Logan and Rausch 1985) inan analysis fcon-tracting ut withthe privatesector for prisons,argue that,although t is unlikely o replacegovernmentroduction, on-tractingutdoes provide mportantnformations to theeffec-tiveness nd efficiencyfgovernmentroduction nd shouldbeencouraged ccordingly.30. Sonenblum, t al. (1977, p. 24) notethatoneoftheconcerns f

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344 PUBLIC ADMINISTRATION REVIEWcontractingitieswas that maller itieswere able to pay lowerwagesthan the arger ountygovernments.31. This is consistentwith elatedwork e.g., Sundeen,1985)whichargues thatthecapacity forcoproductionby governmentndneighborhood nd nonprofit roupsdependson thecommunitycharacteristics.32. Although n objective lassification as been ttempted, omeofit is necessarilyubjective.

33. In the absence of empirical stimates f theproductionfunc-

tions, t snotalwaysobviouswhich ervicesre labor ntensive.Additional nformations needed nseveral ases to adequatelyassess this.34. For example,thefirstibraries ntheUnitedStateswererunbyvoluntaryssociationsWeisbrod,1977,p. 157).35. This view is consistentwitha recent tudy Ferris,1985a) inwhichgeneral ommunity-levelharacteristicserefoundto bepowerful redictors f thedegreeofcontractingut.

References

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