Empirical evidence shows local government contracting is a dynamic process that includes movements from public delivery to markets and from market contracts back to in-house delivery. This “reverse contracting” reflects the complexity of public service provision in a world where market alternatives are used along with public delivery. We develop a methodology to link responses to national surveys and create a longitudinal data set that captures the dynamics of the contracting process. We present a framework that incorporates principal agent problems, government management, monitoring and citizen concerns, and market structure. Our statistical analysis finds government management, monitoring, and principal agent problems to be most important in explaining both new contracting out and contracting back-in. Professional managers recognize the importance of monitoring and the need for public engagement in the service delivery process. The results support the new public service that argues public managers do more than steer a market process; they balance technical and political concerns to secure public value.

Privatization of local government services is assumed to deliver cost savings, but empirical evidence for this from around the world is mixed. We conduct a meta-regression analysis of all econometric studies examining privatization of water distribution and solid waste collection services and find no systematic support for lower costs with private production. Differences in study results are explained by differences in time period of the analyses, service characteristics, and policy environment. We do not find a genuine empirical effect of cost savings resulting from private production. The results suggest that to ensure cost savings, more attention be given to the cost characteristics of the service, the transaction costs involved, and the policy environment stimulating competition, rather than to the debate over public versus private delivery of these services. © 2010 by the Association for Public Policy Analysis and Management.

Analysis of local government contracting decisions typically focuses on transactions costs related to service characteristics, especially asset specificity and difficulty of contract management. This analysis expands the focus to include market characteristics (competition), citizen characteristics (public interest in the service delivery process), and place characteristics (metro status and public management) and finds these are the more important factors. A 2007 survey of US city managers’ rankings of 67 services by transactions costs, competition, and citizen interest is combined with a 2007 national survey of city managers’ sourcing decisions (direct public, intergovernment cooperation, for-profit and nonprofit contracting). Multinomial logit models of service delivery sourcing choice find that metro status and competition are key explanatory variables. Intergovernmental cooperation represents an important public market alternative when contract management is difficult and competition is low. For profit contracting is less common when citizen interest is high and competition is low. Governments with professional managers appear more effective in addressing these broader transactions costs of citizen interests, political and labor opposition, and market management.

Austerity and fiscal crisis make the search for cost‐saving reforms in local government more critical. While cost savings from privatization have frequently proven ephemeral, inter‐municipal cooperation has been a relatively understudied reform. We analyse the literature on cost savings under cooperation and find that savings are dependent on (1) the cost structure of public services, particularly those related to scale and density economies and externalities, (2) the structure of local government (size, metropolitan location, powers granted by the nation or regional state), and (3) the governance framework at the local/regional level where cooperation varies from informal to formal. European studies give more emphasis to cost savings, while US studies focus on coordination concerns arising from the higher degree of devolution in the US local government system.

Polycentric theory, as applied to sustainability policy adoption, contends that municipalities will act independently to provide public services that protect the environment. Our multilevel regression analysis of survey responses from 1,497 municipalities across the United States challenges that notion. We find that internal drivers of municipal action are insufficient. Lower policy adoption is explained by capacity constraints. More policy making occurs in states with a multilevel governance framework supportive of local sustainability action. Contrary to Fischel’s homevoter hypothesis, we find large cities and rural areas show higher levels of adoption than suburbs (possibly due to free riding within a metropolitan region).