Contracting in local public organizations: the institutional economics perspective

The institutional economics is one of the approaches to explain the utility of contracting of local public service provision. This paper described and critiqued the assumptions underlying institutional economics as it is used in organization theories. It also explains whether and why these assumptions hold in public sector organizations. Finally, it discusses implications from the institutional economics approach for the local agency. Local agencies taking new institutional economics perspective as the basis for its contracting decisions should take transaction risks and information asymmetry into account. Copyright © 2014 John Wiley & Sons, Ltd.