2
transaction problems relating to the transaction characteristics of goods, the capacities
and political incentives of local government service providers, and the market contexts in
which they are imbedded (see Feiock and Jang 2004). In order to investigate how these
factors influence service production, we examine how municipal service delivery
arrangements changed from 1997 to 2002.
Vertical Integration of Municipal Service Delivery
The phenomenon we refer to as “vertical integration” of municipal services has
been referred to as “privatization failure” (Sappington and Stiglitz 1987; Clingermayer
and Feiock 1997; 2001), “contact failure” (Lamothe and Lamothe 2005) and “contacting
back in” (Hefetz and Warner 2004). We choose the term vertical integration to link our
arguments directly to transaction cost theories of vertical integration in firms pioneered
by Williamson 1981; 1986). The terms privatization failure and contract failure are
somewhat pejorative and do not reflect that vertical integration may signify government
success in manipulating the market to identify when to internalize.
1
Contracting “back-
in” suggests that services that move from contracted production to in-house government
production were produced in- house at one time and then outsourced. This is not the case
if market production arrangements are utilized when services are first introduced as
recent work suggests (Feiock, Clingermayer and Dasse 2002).
Vertical integration is evidenced when services are contracted out to alternative
producers at some point in time and are subsequently taken in- house or internalized by
the government providing the service. Vertical integration decisions may or may not be
linked to market failure. Vertical integration can be a response to transaction costs of
Convention