Changing modes of service delivery: how past choices structure future choices

Public managers and their political overseers can choose from several approaches as they decide how to structure the delivery of goods and services to citizens. The three most common service-delivery modes are: internal service delivery, in which the government produces the entire service; contracts with other governments, private firms, or nonprofit organizations; and joint service-delivery arrangements. Traditionally, governments' decision to 'make or buy' has been framed statically: public managers and their political overseers select one delivery mode over alternatives and then remain committed to that delivery approach. Of course, in practice, service-delivery choices can be more fluid: internal service delivery can later change to contracts, and contracts can later be internalized. Changing service-delivery modes is a potentially costly undertaking. Governments that elect to switch typically make changes to existing production systems and management systems. Varying costs associated with the alteration of existing production and management systems make switching from some modes of service delivery easier than others, depending in part on how the service was initially delivered. In general, the costs of changing from direct service delivery to contract service delivery are likely to be high: managers have to dedicate significant time and effort to dismantling existing production and management systems and building new ones. On the other hand, the service-delivery decisions of contracting governments are likely to be more dynamic because they have typically already incurred the costs of changing at a previous date. Sometimes governments internalize services when they have been using joint or contracted service delivery, whereas at other times they remain in the market by switching vendor type. In this paper we examine how governments' previous service-delivery choices structure their future choices. We analyze panel data from the 1992 and 1997 International City/County Manager Association's Alternative Service Delivery surveys along with data from the US Census and other sources. Our results suggest. that service-delivery choices exhibit strong inertia, although when change occurs the previous service-delivery mode influences the likelihood of changing to other service-delivery modes in important ways. In general, governments which have already internalized the upfront costs of changing modes of service delivery are more likely to approach service-delivery choices more dynamically in future decision making.