Does Inter-Municipal Cooperation Really Reduce Delivery Costs? An Empirical Evaluation of the Role of Scale Economies, Transaction Costs, and Governance Arrangements

Abstract

Inter-municipal cooperation in public service delivery has attracted the interest of local authorities seeking to reform public service provision. Cost saving, together with better quality and coordination, has been among the most important drivers of such cooperation. However, the empirical results on inter-municipal cooperation and its associated costs offer divergent outcomes. By conducting a meta-regression analysis, we seek to explain this discrepancy. We formulate several hypotheses regarding scale economies, transaction costs, and governance of cooperation. 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 cooperating municipalities. As an extension of our model, we seek to disentangle service-related transaction costs based on asset specificity and ease of measurability of the service.