New England Public Policy Center Working Paper No. 08-4
by Robert D. Mohr, University of New Hampshire, Steven Deller, University of Wisconsin-Madison, and John Halstead, University of New Hampshire

Using data from approximately 1,000 small and mostly rural municipalities from Illinois, New Hampshire, and Wisconsin, the authors study choices in production arrangements over a wide range of services, and examine a variety of contracting options available to local governments. The data reveal that municipalities often rely on contracts to provide an extensive list of services.

The use of for-profit contractors and cooperative agreements with other governments correlates negatively with population. Nonetheless, small municipalities are less likely to use competitive bidding processes, compare costs between production options, and report that privatization produces savings. Other factors, such as median income, rural geography, and ideology, show statistically significant associations with contracting choices.

Respondents generally consider themselves "satisfied" with services provided by contract, although satisfaction levels are lower than those associated with self-provision. Satisfaction with services provided by other governments is lower than satisfaction with services provided by private contractors. This suggests that small municipalities encounter no tradeoff in service quality directly attributable to for-profit contractors.

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