INTER‐MUNICIPAL COOPERATION AND COSTS: EXPECTATIONS AND EVIDENCE
| Published date | 01 March 2015 |
| Author | MILDRED E. WARNER,GERMÀ BEL |
| DOI | http://doi.org/10.1111/padm.12104 |
| Date | 01 March 2015 |
doi : 10. 1111/p adm .12104
INTER-MUNICIPAL COOPERATION AND COSTS:
EXPECTATIONS AND EVIDENCE
GERMÀ BEL AND MILDRED E. WARNER
Austerity and scal crisis make the search for cost-saving reforms in local government more critical.
While cost savings from privatization have frequently proven ephemeral, inter-municipal cooper-
ation has been a relatively understudied reform. We analyse the literature on cost savings under
cooperation and nd that savings are dependent on (1) the cost structure of public services, par-
ticularly those related to scale and density economies and externalities, (2) the structure of local
government (size, metropolitan location, powers granted by the nation or regional state), and (3) the
governance framework at the local/regional level where cooperation varies from informal to for-
mal. European studies give more emphasis to cost savings, while US studies focus on coordination
concerns arising from the higher degree of devolution in the US local government system.
INTRODUCTION
Many developed economies have been hit hard by the economic crisis that began in 2008.
This crisis has caused serious tensions in government nances, which have affected the
countries of southern Europe and Ireland in the Eurozone. While decit orientations are
important at the country level, following Maastricht criteria for public nance stability,
these constraints have a strong impact at the local level, because many central governments
have mandated strict decit objectives to local governments, which face a more limited tax
base and stronger scal competition. European Commission requirements regardingcom-
petition in services of general economic interest have had an impact on local government
especially as a result of austerity (Warner and Clifton 2014). Thus, the scal crisis inten-
sies the need for local governments to rethink service delivery in order to increase the
efciency of locally provided services.
A policy traditionally proposed to reduce costs is the consolidation of municipalities.
Although it can be either compulsory or voluntary, in practice most examples worldwide
have had a compulsory character, given the usual reluctance of municipalities to merge.
However, results on cost reduction from amalgamation have not met expectations; cost
savings are the exception and costs often grow as a result of consolidation, as most case
studies reviewed in Bish (2001), Dollery and Johnson (2005), Fox and Gurley (2006), and
Holzer and Fry (2011) show. No cost savings is the usual result found by the most robust
empirical studies conducted in different countries aroundthe world (Allers and Geertsema
2012).
Another policy assumed to address problems of scale is privatization of service deliv-
ery.Here again, results on cost savings are mixed (Boyne 1998; Hodge 2000; Bel et al. 2010)
and are attributed to lack of competition, early exhaustion of any economies of scale, and
inadequate before and after accounting of costs. Most studies nd less frequent contract-
ing in small and rural municipalities, although in the USA contracting rates increased in
rural municipalities in 2007 (Hefetz et al. 2012). Rural areas appear to be more reluctant to
contract because transaction costs do not compensate potential efciency gains on a small
scale (Bel and Miralles 2003), and because fewer private providers are available in small
Germà Bel is in the Department of Political Economy,University of Barcelona, Spain. Mildred E. Warner is in the Depart-
ment of City and Regional Planning, Cornell University,Ithaca, New York, USA.
Public Administration Vol.93, No. 1, 2015 (52–67)
© 2014 John Wiley & Sons Ltd.
INTER-MUNICIPAL COOPERATION AND COSTS 53
and rural areas (Warner and Hefetz 2002b; Warner 2006; Bel and Fageda 2011; Hefetz and
Warner 2012; Johnston and Girth 2012). In this context, it is interesting and timely to anal-
yse the potential that inter-municipal/inter-local cooperation offers to municipalities to
improve efciency and effectiveness of public service delivery. Cooperation has received
far less attention than privatization, and the literature is still scarce with respect to cost
evaluation.
The potential of sharing services as an alternative metropolitan regional governance
reform was envisaged half a century ago by Ostrom et al. (1961, p. 836), when they sug-
gested that small municipalities could make use of special arrangements to act jointly
to provide services when the municipal boundary is suboptimal. Furthermore, this can
help small municipalities confront limited managerial and technical capabilities (Deller
and Rudnicki 1992), and also help municipalities to confront problems of scal stress
(Zafra-Gómez et al., 2014). Shared services delivery is a widespread phenomenon, and is
particularly intense in small municipalities (Warner and Hefetz 2003; Bel and Costas 2006;
Carr et al. 2009; Warner 2011). However, systematic evidence on the relationship between
inter-municipal cooperation and costs is scant and contradictory, and evidence on its role
in promoting regional coordination is equally limited.
The objective of our article is to provide a rationale for the existence of diverging empir-
ical results on inter-municipal cooperation and costs. First we analyse the theoretical back-
ground relevant to the economic and governance effects of inter-municipal cooperation.
We pay special attention to: (1) the cost structure of public services, particularly those
related to scale and density economies, and externalities; (2) the structure of local govern-
ment (size, metropolitan location, powers granted by the nation or regional state); and (3)
the transactions costs of the governance arrangement. Transactioncosts result from service
characteristics, city characteristics, institutional design, and organizational arrangements;
these last two are of particular interest in public administration (Frederickson and Smith
2003; Feiock 2007, 2013; Hefetz and Warner2012). After establishing our theoretical frame-
work, we review the existing multivariate empirical evidence. We are able to identify the
characteristics of cost structure and service delivery governance that should be considered
under cooperation and the importance of differing national structures of local government
systems on the scope of cooperation reforms. Weconclude with a discussion of what coop-
eration can and cannot achieve and directions for future research.
WHAT IS COOPERATION?
Cooperation in service delivery is a concept that encompasses a variety of forms, which
widen as we adopt an international comparative approach. Useful characterizations for
shared service arrangements are found in the public administration literature. Agranoff
and McGuire (2003, pp. 43–44) and McGuire and Agranoff (2011) model shared services
as the intersection of two dimensions, the intensity of collaborative activity by a city, and
the extent to which this activity is strategic. Feiock and Scholz (2010, p. 16) emphasize
autonomy, understood as the ease of entry and exit from a collaborative agreement, as a
key dimension to delimit different types of cooperative arrangements. Feiock (2009) adds
the number of actors involved as an additional dimension to categorize the arrangements
(bi-lateral, multi-lateral).
In Europe these types of cooperation can take the form of joint corporations or admin-
istrative organizations where the different municipalities involved share ownership and
production, as happens in Norway (Sørensen 2007), Finland (Haveri and Airaksinen 2007),
Public Administration Vol.93, No. 1, 2015 (52–67)
© 2014 John Wiley& Sons Ltd.
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