Monitoring arrangements for outsourced public services: the importance of service characteristics for the distribution of oversight responsibilities

Abstract

The research question guiding this article is which factors explain monitoring arrangements for outsourced public services. The article first investigates the independent impact of asset specificity and measurement difficulty on monitoring arrangements for a range of oversight tasks commonly used to hold vendors accountable. Secondly, this study includes high transaction costs as an explanatory variable in models that explain the use of two types of proxy monitoring arrangements as compared to direct government oversight. A unique dataset of outsourced Florida municipal services is analyzed using two-stage Heckman selection models, ordered logistic regression, and multinomial estimation. A key finding indicates that for services where multiple transaction costs characteristics are observed simultaneously (high transaction costs services), oversight arrangements are different. When these services are outsourced, vendors and third-party monitors are more likely to perform certain monitoring tasks when compared to government officials. This research contributes to the vast and expanding literature on local governments’ service delivery by outlining how compounding of services’ production transaction costs can lead to a complex myriad of oversight strategies.