Service Procurement in Public Sector: the Influence of the Institutional Context on the Decision Makers’ Attentiveness to Transaction Cost Considerations
Abstract: The public sector in most advanced economies accounts for a major share of the economy. In Norway, for example, the public sector purchases goods and services for more than 300 billion kroner annually (about 41 billion Euros, or about 15% of the GDP of mainland Norway). Yet, the public sector is often reported to fail in terms of procurement efficiency. In this study, we consider the extent to which public agencies follow the logic of transaction cost economics, and if following the logic of transaction cost economics is contingent on the decision maker’s institutional context. Specifically, we examine how bureaucratic pressure moderates the relationship between asset specificity and the use of different contractual governance forms in public sector procurement. In a Scandinavian survey of 310 relationships between public agencies (buyers) and external service suppliers, we find a moderating effect of institutional context on public agencies attentiveness to the logic of transaction costs. Bureaucratic pressure decreases the expected relations between buyer-held investments and contracting, both for (i) formal contract detail, (ii) formal contract flexibility and (iii) relational norms. However, our findings are more mixed related to supplier-held specific investments. This paper suggests that more research should explore how strategic sensitivity to the logic of transaction costs is contingent on decision makers’ institutional context.
