Correcting for Selection Bias Using a Heckman Selection Model

Abstract: Despite the growing scholarly attention on the efficiency rationale of con-tracting out, the empirical evidence to support claims that contracting out service deliv-ery reduces service costs has not been forthcoming. Using transaction cost theories, this research explores park and recreation service provision costs across contractor sec-tors, controlling for the choice to contract out a service or not. The two-stage Heckman model indicates the importance of competitive markets and economies of scale in reducing transaction cost risk which local governments must face. This research also addresses how state and local institutional settings define the context in which policy decisions are made and implemented