Neither Market Nor Hierarchy: Concurrent Sourcing in Water Public Services

Abstract

Analytical frameworks of government service contracting decisions typically focuses on the make-or-buy decision. In concepts, governments can either produce the service itself (make), or outsource production (buy). However, governments make and buy the same public services, a practice that is termed concurrent sourcing. Drawing on transaction cost economics and the resource-based view of the firm, this paper examines empirically local governments' propensities to concurrently source public services. Using a unique dataset on water public services of more than 4,000 French municipalities for four years-1998, 2001, 2004 and 2008we find that low transaction hazards, prior contracting experience and low production capabilities have a positive impact on the level of concurrent sourcing. These findings demonstrate that organizations' characteristics are a significant factor in sourcing decisions and suggest that capabilities and their interactions with transaction hazards deserve heightened attention in the study of public contracting.

In the shadow of sunshine regulation: Explaining disclosure biases

“…As this result is counterintuitive, we explore sensitivity to specifications with two additional specifications of transaction cost economizing. Other existing proxies are proxies of complexity such as the cost of contracts, the condition of operation (Porcher 2016), or asset specificity scored through surveys (Brown & Potoski 2003). First, we look at the conjoint effect of the complexity of performance indicators measurement i and the size of the service s. The rationale is that the smaller the service, the more it is impacted by transaction costs.…”

Contracting to improve public service provision

“…The use of concurrent sourcing in the public sector is both examined in general (e.g. Brown et al, 2015; Miranda and Lerner, 1995; Warner and Hefetz, 2008) and in more specific areas such as water supply services (Porcher, 2016), refuse collection (Savas, 1977), school cleaning, information technology (IT) maintenance, road maintenance, and job activation (Hansen et al, 2011). Empirical results suggest that concurrent sourcing enhances competition in markets and secures internal production capacity at the public organization responsible for providing the service in the case the private supplier fails to deliver (Warner and Hefetz, 2012); in line with this, Hefetz et al (2014) find that total contracting out is used to a larger extent when the external supplier is another public organization, whereas partial contracting out is used to a larger degree when the external supplier is a for-profit organization.…”

“…Furthermore, Savas (1977) finds that when a consortium of private firms started collecting refuse in part of Minneapolis, the city department closed the initial gap between the two in terms of costs and performance after a new competitive pressure was introduced. Porcher (2016) examines how concurrent sourcing affects performance in water public services and finds that concurrent sourcing has positive impact on quality performance but results in higher prices. On the contrary, Miranda and Lerner (1995) find that arrangements with both a private or non-profit supplier and some in-house government production in general are cost-effective.…”

“…According to the resource based view, sourcing decisions are determined by the resources and capabilities possessed by the sourcing organization, that is, organizations delivering the same product or service may make different sourcing decisions due to differences in their attributes (Barney, 1991; Wernerfelt, 1984). Porcher (2016) includes variables from the resource based view in his study of municipalities’ use of concurrent sourcing in water services; he finds a positive relationship between the municipalities’ contracting capabilities and concurrent sourcing and a negative relationship between production capabilities and concurrent sourcing, that is municipalities with superior production capabilities to a larger extent rely on their own internal production than external suppliers. Porcher (2016) does not, however, address knowledge transfer between the municipality and the private supplier.…”

“…Porcher (2016) includes variables from the resource based view in his study of municipalities’ use of concurrent sourcing in water services; he finds a positive relationship between the municipalities’ contracting capabilities and concurrent sourcing and a negative relationship between production capabilities and concurrent sourcing, that is municipalities with superior production capabilities to a larger extent rely on their own internal production than external suppliers. Porcher (2016) does not, however, address knowledge transfer between the municipality and the private supplier. The studies previously dealing with knowledge effects assume that knowledge transfer is possible and are typically built on the logic of absorptive capacity.…”