Local institutions and public service outsourcing: Managerial professionalism, mayoral strength, and electoral rules

Published date01 November 2022
AuthorWenchi Wei,Zhiwei Zhang,Kaifeng Yang
Date01 November 2022
DOIhttp://doi.org/10.1111/puar.13525
RESEARCH ARTICLE
Local institutions and public service outsourcing: Managerial
professionalism, mayoral strength, and electoral rules
Wenchi Wei
1
| Zhiwei Zhang
2
| Kaifeng Yang
3
1
Institute of Public Finance and Public Policy,
School of Public Administration and Policy,
Renmin University of China, Beijing, China
2
Department of Political Science, Kansas State
University, Manhattan, Kansas, USA
3
Department of Public Administration, School of
Public Administration and Policy, Renmin
University of China, Beijing, China
Correspondence
Wenchi Wei, Institute of Public Finance and
Public Policy, School of Public Administration
and Policy, Renmin University of China,
210 Qiushi Building, 59 Zhongguancun Avenue,
Beijing 100872, China.
Email: weiwenchi@ruc.edu.cn
Funding information
Beijing Social Science Foundation; National
Natural Science Foundation of China
Abstract
This research examines how institutional contexts matter for US municipalitiesser-
vice outsourcing decisions, deriving data from the ICMAs multiple rounds of sur-
veys concerning local institutions and service delivery choices. We focus on seven
pivotal local institutions that address managerial professionalism, mayoral
strength, and electoral rules. Moreover, a composite index measuring the general
nature of the municipal structure on a politicaladministrative scale is constructed
based on the local institutions examined. The empirical estimations use the exis-
tence of initiatives and popular referenda allowing citizen voters to adjust local
statutes as instrumental variables for local institutions. We find that municipalities
with a council-manager municipal form, a professional manager, a weak mayor,
and nonpartisan and at-large elections of council members outsource less services.
Professional managers can moderate the effects of contextual factors on govern-
ment outsourcing decisions. Moreover, municipalities with a more political or a
less administrative municipal structure outsource a larger portion of services.
Evidence for Practice
The statutory council-manager municipal form, the existence of a professional
manager, a weak mayor, and nonpartisan and at-large elections of council mem-
bers have negative effects on the degree of government service outsourcing.
Professional managers within municipalities can moderate the influence of key
contextual factors, such as population size and fiscal stress, on local outsourcing
decisions.
A municipal structure that is more political or less administrative in nature posi-
tively affects government service outsourcing, especially outsourcing through
interlocal cooperation.
The driving factors are distinct across different forms of public service out-
sourcing, including outsourcing to private firms, nonprofit organizations, and
other governments.
INTRODUCTION
The struggles of many public programs and widespread
government failure in coping with social problems since
the 1970s have fundamentally altered the nature of gover-
nance of state and local governments in the United States
(Brown & Potoski, 2003). Market-oriented reforms in the
Reagan era and academias strong endorsement of market-
ization have propelled the government to deliver public
services in diverse and innovative ways (Kettl, 2011). Public
administration and management scholars have long stud-
ied the driving factors of the outsourcing of government
services. Since the early empirical studies (e.g., Ferris, 1986;
Ferris & Graddy, 1986; Florestano & Gordon, 1980), the liter-
ature has primarily focused on the effects of fiscal stress,
economic efficiency, political interests, and the ideological
attitudes of officials and citizens on local outsourcing pol-
icy making (Bel & Fageda, 2007,2017). However, the exis-
ting empirical findings are largely mixed or inconclusive,
primarily due to the differences in research designs, the
samples selected, the types of services examined, and con-
textual settings (Bel& Fageda, 2007,2017).
Moreover, despite the abundant evidence on the
determinants of public service delivery choices, the
Received: 2 September 2021 Revised: 18 May 2022 Accepted: 23 May 2022
DOI: 10.1111/puar.13525
Public Admin Rev. 2022;82:10951123. wileyonlinelibrary.com/journal/puar © 2022 American Society for Public Administration. 1095
importance of local institutions remains largely under-
explored. Elected politicians and appointed bureaucrats
in different institutional contexts presumably have sub-
stantially distinct career paths and reward incentives
(Frederickson et al., 2004; Lubell et al., 2009). Moreover,
local institutions provide the basis on which public author-
ity is allocated, local politics are organized, and public poli-
cies are enacted and implemented (Lubell et al., 2009;
Wei, 2022; Wei et al., 2019). Therefore, the lack of in-depth
research on whether and how local institutions matter for
public service delivery choices forms an important gap in
research (Frederickson et al., 2004; Wei et al., 2019).
Another key limitation of the existing literature relates to
the research methodology. The use of 1-year data and
cross-sectional analysis may result in precarious or mislead-
ing empirical findings (Bel & Fageda, 2007).
1
Although
some recent studies attempt to provide reliable evidence
using causal models, such as the regression discontinuity
design used by Alonso and Andrews (2020)andtheinstru-
mental variable (IV) estimation used by Geys and Sørensen
(2016), there is still a need for causal evidence obtained
based on the US context.
This article contributes to the related literature in at
least three ways. First, it examines how the institutional
contexts of US municipalities may affect service out-
sourcing. In particular, we focus on seven essential local
institutions that address managerial professionalism, the
separation of powers between politicians, and local elec-
tions. Second, this article draws on the approach of Wei
et al. (2019) and Wei (2022) to create an index that mea-
sures the general nature of the municipal structure on a
politicaladministrative scale based on the institutions
examined, and this index is used to test the effect of the
municipal structure on government service outsourcing.
The municipal structure index substantially differs from
previous approaches to classifying municipal form that
rely on a dichotomous typology. Finally, the empirical
analyses use IV estimation to solve the endogeneity prob-
lems in the empirical analysis, thus generating reliable
causal evidence.
This article is organized as follows. The next section
briefly introduces the existing literature, and the subsequent
section proposes testable hypotheses based on theoretical
analyses, followed by the section based on methodology.
The section preceding the last section reports the empirical
results. The last section briefly concludes the research and
discusses its academic implications.
LITERATURE REVIEW
Two lines of theoretical reasoning fundamentally under-
pin the privatization or outsourcing of public services.
First, public choice theory views government as a Levia-
than (Brennan & Buchanan, 1977; Mueller, 2003) and
regards public bureaucrats as maximizers of private utility
(Mueller, 2003; Niskanen, 1971,1975). Thus, government
officials are prone to oversupply public services with the
goals of expanding their control over budgetary resources
and creating opportunities for rent-seeking (Bel &
Fageda, 2007;Boyne,1998; Mohr et al., 2010;Savas,1987).
One means of addressing the problem of oversupply is to
introduce alternative service delivery (ASD) choices by
embracing market competition and cooperative agree-
ments. Therefore, public choice scholars generally favor
public service privatization, holding that private firms are
more efficient than governments because of economies of
scale, higher labor productivity, and fewer legal con-
straints(Rho, 2013, p. 328). The second line of reasoning
draws on transaction costs theory, which holds that gov-
ernment decisions to make or buy public services are
primarily determined by the transaction costs incurred
by negotiating and monitoring outsourcing contracts
(Williamson, 1981,1991,1999). Therefore, the factors
influencing transaction costs should be the key determi-
nants of service outsourcing (Brown & Potoski, 2003;
Hefetz & Warner, 2012).
In the literature on public service outsourcing, empiri-
cal studies primarily focus on three broad groups of driv-
ing factors: fiscal stress, economic efficiency, and political
processes and ideological attitudes (Bel & Fageda, 2007,
2017). First, previous studies generally find that fiscal
stress (budget deficits, outstanding debt, and reliance on
fiscal transfers) pushes governments to outsource more
services (e.g., Bel & Fageda, 2007; Ferris & Graddy, 1986;
LeRoux & Pandey, 2011; Morgan & England, 1988; Zhang
et al., 2018). Second, regarding the factors of economic
efficiency, previous studies can be classified into two cat-
egories: studies belonging to the first category focus on
economies of scale in public service provision, while
those belonging to the second category explore cost sav-
ings based on transaction costs theory. Factors such as
the socioeconomic characteristics of localities, asset speci-
ficities, difficulties in contract management, and market
competition have been thoroughly investigated. Lastly,
studies focusing on political and ideological factors
mostly explore how pressure from interest groups and
the ideological attitudes of citizens and officials can affect
local service outsourcing (e.g., Alonso & Andrews, 2020;
Breaux et al., 2002;Ferris,1986; Pallesen, 2004;Thompson&
Elling, 2000; Wallin, 1997). These factors include the party
identification and political ideology of politicians and citi-
zens (Fernandez et al., 2008; Savas, 2000), public opinions
toward service outsourcing (Alonso & Andrews, 2020), and
the degree of unionization of public sector employees
(Fernandez et al., 2007; Fernandez & Smith, 2006).
In addition to the literature introduced above, a con-
siderable amount of scholarly attention has been paid to
the specific factors influencing intergovernmental service
contracts, which account for a large portion of local ser-
vice outsourcing practices (e.g., Andrew et al., 2015;
Krueger et al., 2011; Kwon et al., 2014; LeRoux et al., 2010;
Shrestha & Feiock, 2011; Thurmaier & Wood, 2002). First,
some studies investigate how cost considerations, fiscal
1096 RELEVANCE OF INSTITUTIONAL CONTEXTS FOR SERVICE OUTSOURCING

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