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The art of alignment transaction cost economics and the provision of public services at the local level

University of Twente
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  • Political Science


This book is situated against the background of the debate on recent institutional changes in the public sector. These changes concern the privatization, liberalization and autonomization of different kinds of public services. The main incentives for introducing such new modes of governance were, and still are, expectations of efficiency improvements. Whether or not these, in fact, were realized is questioned, however. Transaction Cost Economics (TCE) has been put forward as an approach to address this issue. Our study focuses on the question whether and in which form TCE, which was originally developed by Oliver Williamson to analyse commercial transactions, can be applied to institutional changes at the local government level in the Netherlands. More specifically, this study addresses the question what the discriminating alignment hypothesis - stating that transactions, which differ in their attributes, are aligned with governance structures, to effect a transaction cost economizing result - can contribute to comparative assessments of the efficiency and performance of governance structures at the local level. To that end, this book studies the local public service of collecting household waste. Here, a number of institutional changes have resulted in a variety of modes of governance, i.e. contracting out to private companies, public companies, and municipal services. A comparative case study of eight municipalities with a high urbanization degree shows that with regard to this particular public service, alignment between governance structures and transactions matters. The misaligned mode ‘public company’ has the highest relative level of transaction costs, while the aligned modes ‘municipal service’ and ‘contracting out’ have a lower relative level of transaction costs. These findings are consistent with the theory.

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