Trust, Transaction Costs, and Service Production Decisions: An Institutional Collective Action Explanation

Foundation. This is a draft paper, please do not cite without permission from the authors. 2 A basic premise in analyses of local government contracting is that the transaction costs of contracting arrangements limit opportunities for cooperation on local public services. Yet, the Institutional Collective Action framework proposes that network participation will help to mitigate transactions costs inherent in these services characteristics. We use data from service production arrangements for 43 different services from 159 cities in Michigan to examine the propositions of the ICA framework that service production decisions are conditioned by the transaction characteristics of services and the embedded social structure of local government officials. Using multinomial probit, we examine how these factors influence choices among three different production mechanisms: (1) internal production, (2) joint or complete contracting with another government, and (3) nongovernmental (private) provision. We test hypotheses linking contracting decisions to the transaction characteristics o