Do Public Health Service Characteristics Matter? Exploring the Make-or-Buy Decision in Local Health Departments

Abstract

Public health services can be provided by local health departments (LHDs) or external contractors. This study aims to determine which characteristics of public health services, if any, influence the contracting out decision in local health departments. The transaction cost approach, market failure theory, and government failure theory provide theoretical frameworks for how two characteristics of public health services—asset specificity and service measurability—could impact the decision to make or buy in local health departments. This study employs a multinomial logistic regression model for analysis and uses multiple data sources. The findings suggest that public health agencies are less likely to deliver services internally at low and high levels of transaction costs, while more likely to produce services in-house at moderate levels of transaction costs. Furthermore, for services that are difficult to measure vendor performance, LHDs are less likely to choose complete contracting.