Does inter-municipal cooperation really reduce delivery costs? An empirical evaluation of the role of scale economies, transaction costs, and governance arragements [WP]

Abstract

Inter-municipal cooperation in public service delivery has attracted the interest of local authorities seeking to reform public service provision in recent years. Cost saving has been among the most important drivers of such cooperation. However, the empirical results from the literature on inter- municipal cooperation and its associated costs offer contradictory outcomes in this regard. The boom in empirical studies addressing this question over the last decade offers insights into the factors that might explain the discrepancy in reported outcomes. With this objective in mind, we conduct a meta-regression analysis that considers all existing multivariate empirical studies of this matter. We formulate several hypotheses regarding scale economies, transaction costs, and governance of cooperation, based on the prior theoretical literature. While we find no clear indications of the role played by transaction costs in the relationship between cooperation and service delivery costs, we find strong evidence that population size and governance are significant in explaining the relationship. Specifically, small populations and delegation to a higher tier of government seem to offer cost advantages to municipalities when opting to cooperate. Furthermore, we build an extension of our model by disentangling service-related transaction costs based on asset specificity and ease of measurability of the service.