Reexamining the Role of Nonprofits in the Local Service Delivery Literature

• In Event: Bureaucrats in Local Government

Abstract

Scholars of local government service delivery have long considered nonprofits to be the primary contracting partners for the production of human services. As a result, agency theory, most commonly conceptualized in the context of transaction cost economics (Brown and Potoski 2003), has been the primary lens adopted when studying nonprofit-government relationships. Within this framework, nonprofits are viewed as more trustworthy vendors than their for-profit counterparts due to their nondistributive constraints and goal congruence, which lower transaction costs for government when they outsource services that are difficult to measure and monitor (Smith and Gronbjerg 2006).

However, the findings from our recent research (see Lamothe and Lamothe forthcoming) suggest that such theorization can be misleading since local governments are often not the true providers of the services nonprofit organizations deliver in their communities. Rather, governments may assume only limited responsibility by offering small grants and in-kind donations that assist nonprofits in providing services to their residents. In this case, nonprofit service organizations are not prototypical contract agents and governments do not have full principal stakes over these providers as the literature hypothesizes. We also found that the modest financial commitments made by local governments are often accompanied by low levels of involvement in the governance and monitoring of nonprofit service providers. Together, these results imply that we must further explore the exact nature of government-nonprofit relationships when studying local governance and alternative service delivery arrangements.

Despite the need to examine service delivery arrangements beyond typical contracting, the availability of necessary databases to study them has been lacking. At the local level, the ICMA’s alternative service delivery (ASD) survey has long served as the only comprehensive and longitudinal information source for empirical analyses. One severe limitation for researchers is that the ASD survey instrument simply ascertains if nonprofits are involved in service delivery. It does not capture information that would allow scholars to characterize the nature of relationships. In the absence of this critical information, the extant literature has simply tended to assume that all nonprofit-government relationships captured by the ASD are prototypical contracting. That is, principal governments fully provide (i.e., fund, make governance decisions, and monitor) services and outsource their delivery to nonprofit agents.

The purpose of our paper is to capture a much broader set of relationships between governments and nonprofits in local service delivery and to understand the role of nonprofits more accurately. In doing so, we utilize a new dataset based on a redesigned survey that expands the ASD instrument to include more in-depth information regarding local governments’ service provision activity. Particularly, we focus on the level of financial commitments and the nature of arrangements locales utilize when involving nonprofits as service deliverers. The sample is drawn from local jurisdictions that responded to past ASD surveys.

Our preliminary analysis suggests that a surprisingly high proportion of local governments that responded to our survey relies heavily on nonprofit organizations, not as government-financed contract agents, but as the primary service providers that offer essential services often without substantial funding from the local jurisdictions. This portrays a very different view than how the local governance literature typically interprets the nature of the government-nonprofit relationship. We speculate that this discrepancy might be largely explained by the fact that nonprofits often fund their services through a wide variety of sources including grants from upper-level governments (both federal and state entities). Local governments may or may not be their major funders. This poses an important challenge to the existing make-or-buy literature, given that the majority of theorization and empirical examinations in the past has focused exclusively on local governments, which may obscure the larger picture.

References

Brown, Trevor L. and Matthew Potoski. 2003. Transaction costs and institutional explanations for government service production decisions. Journal of Public Administration Research and Theory 13(4): 441-468.

Lamothe, Scott, and Meeyoung Lamothe. Forthcoming. “Towards a Better Understanding of Local Service Provision: Implications for Studying the Determinants of Production Choice.” Public Administration Review. Early release 10/14/23. DOI: 10.1111/puar.13759

Smith, Steven Rathgeb, and Kirsten A. Gronbjerg. 2006. Scope and theory of government-nonprofit relations. In The Nonprofit Sector: A Research Handbook, second edition. Walter W. Powell and Richard Steinberg, eds. New Haven, CT: Yale University Press.

Authors

• Scott Lamothe, University of Oklahoma

• Meeyoung Lamothe, University of Oklahoma