Transaction Cost Politics and Local Service Production

While scholars of urban policy have relied on economic theories of transaction cost in examining local service delivery, less attention has been paid to the role of political transaction costs in local service production choices and changes. Based on a transaction cost politics perspective, this research investigates how city governments’ selection of service production is influenced by political actors’ calculation of political efficacy. Empirical analysis lends support for the idea that the choice of service production arrangements is an outcome of interaction among four political actors - elected officials, managers, line employees, and constituents -who each strategically promote their self-interested career goals in the political process. Controlling for service characteristics, community characteristics, and market size, evidence reveals that changes in service production arrangements are influenced by political and administrative institutions as well the economic situations of citizens.