Redesigning the Hollow State: A Study of Florida Child Welfare Service Reform through the Lens of Principal-Agent Theory

While principal-agency theory has greatly facilitated our understanding of governance and management in the hollow state, close examinations of how system designs affect agency problems has been rare. The purpose of this study is to explicitly investigate the effects of different contract configurations on agent shirking, which is a common problem in third-party service delivery arrangements. Florida's recent statewide privatization and reconfiguration of its child welfare service delivery system are analyzed for this purpose. Data were collected through intensive document reviews and interviews with the public managers and the contract agents who were involved in the reform. Major structural components of the redesigned system (such as overall contract configuration, procurement policies, oversight mechanism, payment methods, and vendor governance structures) are examined and compared with those of the old system. The results of the analysis suggest that the Florida reform installed several structural devices intending to curb agent shirking that plagued the old system. The most significant changes involve a transition of the contracting scheme from a fragmented quasimarket based on dyadic contracting to an integrated service network based on a managed care model, a shift of the focus of the contract oversight from compliance and process to service outcomes, and a transfer of programmatic and financial risks and uncertainties from the government to vendors. Further, the findings of the study reveal some unintended consequences of the reform. For example, the reconfigured system that empowers communities also promotes local parochialism that hinders the government's statewide policymaking ability. The reform that consolidates contracts into the hands of a few large vendors under a standardized contract management system unites the vendors around their common interests to confront their government principal.