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

• Published date: 01 November 2022
• Author: Wenchi Wei,Zhiwei Zhang,Kaifeng Yang
• Date: 01 November 2022
• DOI: http://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 municipalities’ser-

vice outsourcing decisions, deriving data from the ICMA’s 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 political–administrative 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 academia’s 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;82:1095–1123. 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

political–administrative 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