Competition and Local Government's Choice Between Informal and Formal Collaborative Mechanisms: Measuring Dyadic Intercity Competition Through the Lens of Business Trade-Offs

• Published date: 01 April 2023
• DOI: http://doi.org/10.1177/02750740231171685
• Author: Namhoon Ki
• Date: 01 April 2023
• Subject Matter: Articles

Competition and Local Government’s

Choice Between Informal and Formal

Collaborative Mechanisms: Measuring

Dyadic Intercity Competition Through

the Lens of Business Trade-Offs

Namhoon Ki

1

Abstract

Informal and formal collaborative mechanisms are distinctive self-governing strategies that local governments use to mitigate

intergovernmental collaboration risks. Studies on local governance have long argued that both mechanisms tend to co-occur

and appear mutually complementary. However, extant research drawing on the transaction cost perspective provides a more

nuanced and different explanation that as intergovernmental competition increases, local governments lean toward the choice

of a formal mechanism over an informal mechanism to effectively address higher collaboration risks. Through a network lens,

this study empirically tests the latter view. Using the Orlando metropolitan area as a testbed, Multiple Regression Quadratic

Assignment Procedure tests reveal that the use of both collaborative mechanisms is positively associated with the level of

intergovernmental competition. However, different from the initial expectation, local governments are more likely to engage

in the informal mechanism rather than the formal mechanism as the competition level increases. In doing so, this study devel-

oped a new measurement strategy for intergovernmental competition to test the dyadic network-related research hypothe-

ses. The measurement strategy and the research f‌indings should inform future research on intergovernmental relations and

local government network management.

Keywords

intergovernmental competition, formal collaboration, informal collaboration, economic development competition, network

analysis

Introduction

Competition between local governments is easily observed

especially in the economic development policy arena

(Hawkins, 2010; Johnson & Nieman, 2004; Lee et al.,

2012; McGinnis, 1999; Ostrom et al., 1961; Peterson,

1981; Schneider, 1986, 1989). Such competition may foster

intergovernmental learning between local governments

(Gordon, 2007; Smith & Beazley, 2000) and thus possibly

improve the business environment and quality of service.

However, municipalities do not always view such competi-

tion as benef‌icial (Goetz & Kayser, 1993). The interlocal eco-

nomic competition often creates institutional collective

action problems that result in inferior policy outcomes for

the entire region (Post, 2004).

Nevertheless, local governments are often required to reg-

ularly collaborate with regional competitors through diverse

economic development policy actions designed to achieve

economies of scale and address issues such as economic spill-

over, avoiding duplication of services, and income disparity,

which cannot be easily achieved or solved by a single orga-

nization (Agranoff & McGuire, 2003, 2004; Carr et al.,

2009). Collaboration and competition are not incompatible,

though it may sound ironic; in fact, studies found that inter-

governmental competition is positively associated with col-

laborations among local governments (Lee et al., 2012;

Minkoff, 2013; Rubado, 2022). In a similar vein, Benton

(2018) also characterized intergovernmental relations (the

1990s to present) as “Kaleidoscopic,”the co-existence and

emergence of diverse interactions.

In this regard, a subsequent question that must be

answered for both practitioners and scholars is how local

1

Department of Political Science, University of Miami, Coral Gables, FL,

USA

Corresponding Author:

Namhoon Ki, Department of Political Science, University of Miami, 1300

Campo Sano, Suite 220A, Coral Gables, FL 33146-4401, USA.

Email: namhoonki@gmail.com

Article

American Review of Public Administration

2023, Vol. 53(3-4) 134–158

© The Author(s) 2023

Article reuse guidelines:

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DOI: 10.1177/02750740231171685

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governments should collaborate with their regional competi-

tors addressing collaboration risks such as coordination, divi-

sion, and defection risks. Several self-governing mechanisms

for how local governments mitigate such risks have been

offered (Kim et al., 2020; LeRoux et al., 2010; Post, 2004).

Among the mechanisms advanced, two distinctive voluntary

alternatives have garnered scholarly attention: informal (e.g.,

policy advice, information sharing, discussion, etc.) and

formal (e.g., joint venture, service delivery contract, etc.) col-

laboration mechanisms (Terman et al., 2020; Hawkins et al.,

2016; Hawkins, 2010).

Studies have long argued that both informal and formal

collaborations co-occur and appear mutually complementary

rather than as substitutes (Hawkins et al., 2016; Isett et al.,

2011; Minkoff, 2013; Scott, 1995). However, local govern-

ments and their off‌icials are often limited in time and

resources; they may not always be able to fully invest in all

possible collaborative strategies simultaneously to coordinate

and/or cooperate with all the potential partners (Ki et al.,

2020). Under this circumstance, they need to prioritize differ-

ent collaboration mechanisms with their respective regional

partners given the importance of intergovernmental relation-

ships in managing complex problems (Agranoff & McGuire,

2004; Ki et al., 2020), thus possibly resulting in a trade-off

between informal and formal collaboration choices.

The latter view is supported by the literature drawing on

the transaction cost perspective (Andersen & Pierre, 2010;

Carr et al., 2009; Hawkins, 2010; Ki and Park, 2019;

Rodrigues et al., 2012; Rubado, 2021; Terman et al., 2020)

that local governments’choice of either collaborative mech-

anism is a function of the level of intergovernmental compe-

tition and collaboration risks (Terman et al. 2020; Yi et al.

2018). Addressing the gap between those two views (i.e.,

substituting vs. complementing roles of both mechanisms)

promises to bring new insight into the risk hypotheses

(Berardo & Scholz 2010) for intergovernmental collabora-

tions and will provide advice for practitioners as to how to

manage regional intergovernmental networks.

This study begins to f‌ill this gap by testing the relationship

between the level of dyadic intergovernmental competition

and local government’s respective choice of informal

policy and/or formal contract networks with their regional

competitors, analyzing dyadic network relationships among

26 cities within the Orlando metropolitan area. Deviating

from this study’s initial expectation, the analytic results

suggest that the use of both informal and formal collaboration

mechanisms is not subject to a zero-sum game; local govern-

ments would increasingly adopt both collaborative mecha-

nisms with the respective regional partner as their

partner-specif‌ic competition level increases; both informal

and formal collaboration mechanisms would be simultane-

ously employed by local governments. Another departure

from the expectation is that informal collaboration mecha-

nisms would be more likely adopted than formal collabora-

tion ones as the interlocal competition level increases.

Another important contribution of this article is the mea-

surement design for dyadic inter-city competitions in eco-

nomic development. The issue of how to measure dyadic

intergovernmental competition has been a great concern

within the collaborative governance and intergovernmental

relations literature (Minkoff, 2013). Using the trade-offs in

business attraction/retention between cities as a proxy for

inter-city economic competition, this study constructs a 26

×26 dyadic economic competition adjacency matrix for

each pair of 26 cities in the area. This study illustrates specif‌ic

procedures to construct a reliable measure for dyadic eco-

nomic competition in the local governance context and

assesses its validity to test this study’s hypotheses. This

approach can guide future research on governance and inter-

governmental relations to measure intergovernmental compe-

tition with applications across policy arenas and disciplines.

Interlocal Economic Development

Competition Through the Lens of Business

Attraction/Retention Competition

In the area of economic development, local governments

compete against one another for various reasons that are

well established in the extant literature such as resident attrac-

tion, local tax base, job creation, high-quality life, etc.

Accordingly, how to view the interlocal economic develop-

ment competition (EDC) is mixed; the subject of EDC

means different things to different people.

Nevertheless, regarding interlocal EDC, extant literature

indicates that business attraction or retention is the most

common goal of local governments (Bradshaw & Blakely,

1999; Christopherson & Clark, 2007; Olberding, 2002;

Peterson, 1981; Stokan, 2013). The new business investment

enhances the local government’s property tax base and

results in lower unemployment, the inf‌low of new residents,

increased income, and local economic diversif‌ication

(Blakely & Bradshaw, 2002; Zheng & Warner, 2010).

Each city government competes against one another by diver-

sifying and increasing subsidies and tax exemptions to attract

more businesses as well as to capture the tax benef‌its from

diverse industries by locating them in their jurisdiction

(Zheng & Warner, 2010).

In addition, according to ICMA’s (the International City/

County Management Association) recent report about local

government def‌initions of economic development in 2018,

more than 30% of project advisers answered that “creating

and retaining jobs”is the best response to the challenges of

a growing economy, which is followed by growing tax

base (second), and new and expanding businesses (third).

1

Business attraction and retention are directly related to the

f‌irst and third ranked tools, which will also help grow the

local tax base (second-ranked tool). Taken together, this

study posits that business attraction is a relevant lens as

both a cause and a consequence of intergovernmental

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