A TRANSACTION COSTS EXPLANATION OF INTERLOCAL GOVERNMENT COLLABORATION

Abstract

This study develops a model of collaboration choice among city governments. The theoretical model suggests that collaboration is a function of transaction costs that vary with different institutional arrangements utilized in cities, as well as the degree of competition between cities. This study argues that cities facing high transaction costs and high competition are less likely to participate in collaboration and to participate less deeply. Underlying these environmental factors are resource factors that create incentives for cities to collaborate for efficiency gains, which affect both the decision to collaborate and the depth of collaboration. Hypotheses are tested to explain why cities choose to participate in collaboration in the first stage of the analysis and how deeply they collaborate in the second stage. Utilizing a Heckman model of this two-stage process, we find broad support for a number of variables that measure each of these theoretical constructs.

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