Transaction Cost, Exchange Embeddedness, and Interlocal Cooperation in Local Public Goods Supply

Abstract

The authors develop and test an integrated framework for understanding how transaction cost and exchange embeddedness contribute to the general problems of institutional collection action, contracting, and cooperation. An application of the framework to Georgia cities’ interlocal cooperative behavior across multiple services suggests that interlocal cooperation provides a viable alternative to both private contracting and hierarchical arrangements and that transaction characteristics—asset specificity and measurement difficulties—and reciprocal exchange relationship predict the participation and the amount of interlocal cooperation. A curvilinear relationship was discovered between transaction characteristics and interlocal cooperation that extends Williamson’s linear prediction.