Local service delivery choices in Portugal: A political transaction costs framework

Abstract

In recent years, Portugal has witnessed a large increase in municipal corporations to deliver public services. This article addresses the important question of why Portuguese municipalities choose municipal corporations to deliver certain services, while other services remain provided by in-house bureaucracies. We argue that political transaction costs in local service delivery, linked both to the characteristics of goods and services and to the political and financial features of the municipality, prevent or facilitate delivery by municipal corporations. Using data from 278 Portuguese local governments, multivariate probit models are employed to test hypotheses derived from this political transaction costs framework. Results support the idea that services involving the collection of user fees are more likely to be transferred to municipal corporations. The political and socio-economic context has to be considered in this decision-making process. Local officials ignoring this information are likely to create service delivery mechanisms that are economically inefficient and/or politically unresponsive.