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PRODUCTION COSTS, TRANSACTION COSTS, AND LOCAL GOVERNMENT CONTRACTOR CHOICE
Author(s) -
FERRIS JAMES M.,
GRADDY ELIZABETH
Publication year - 1991
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1991.tb00845.x
Subject(s) - transaction cost , production (economics) , local government , economics , service (business) , business , profit (economics) , database transaction , microeconomics , industrial organization , service delivery framework , public economics , finance , marketing , public administration , computer science , political science , programming language
Local governments that choose to externally produce a service can contract with other governments, for‐profit firms, or nonprofit organizations. This contractor choice is modeled as one in which the local government decision maker minimizes service delivery costs, both production and transaction costs, subject to political and fiscal constraints. The model is estimated using data on three frequently contracted health services obtained from a national survey of local government service delivery arrangements. The empirical analysis reveals the importance of both production and transaction costs, as well as the choice set of available suppliers, to contractor choice.