Make or Buy for Public Services: Culture Matters for Efficiency Considerations

Athias, Laure and Wicht, Pascal (2024): Make or Buy for Public Services: Culture Matters for Efficiency Considerations.

Abstract

What determines the share of public employment in countries of similar levels of economic development, at a given size of the State? A standard answer from the public choice literature points to non-benevolent states, emphasizing the importance of constraints on their power. This paper challenges this view by investigating the role of culture and examining whether the relative cost-efficiency of public versus private provision varies across cultures. We build a representative database for contracting choices of municipalities in Switzerland and exploit the discontinuity at the Swiss language border at identical actual set of policies and institutions to analyze the causal effect of culture on the choice of how public services are provided. We find that French-speaking border municipalities are 60% less likely to contract with the private sector than their adjacent German-speaking counterparts. Technical dimensions are much smaller by comparison and their effects do not vary with culture, ruling out cultural bias in municipality choices. We further document that public provision, compared to private provision, increases cost- efficiency within French-speaking Swiss municipalities. These results resonate with the literature emphasizing that public bureaucracies are mission-oriented organizations whose organizational efficiency is enhanced through mission matching, but they also unveil that this mission matching is culturally determined.

• Item Type: MPRA Paper
• Language: English
• Keywords: Culture; Public service delivery; Make-or-buy; Mission-matching; Public sector efficiency; Regression discontinuity design
• Subjects: D - Microeconomics > D2 - Production and Organizations > D23 - Organizational Behavior ; Transaction Costs ; Property Rights; D - Microeconomics > D7 - Analysis of Collective Decision-Making > D73 - Bureaucracy ; Administrative Processes in Public Organizations ; Corruption; H - Public Economics > H1 - Structure and Scope of Government > H11 - Structure, Scope, and Performance of Government; H - Public Economics > H4 - Publicly Provided Goods; H - Public Economics > H5 - National Government Expenditures and Related Policies > H57 - Procurement; L - Industrial Organization > L3 - Nonprofit Organizations and Public Enterprise > L33 - Comparison of Public and Private Enterprises and Nonprofit Institutions ; Privatization ; Contracting Out; Z - Other Special Topics > Z1 - Cultural Economics ; Economic Sociology ; Economic Anthropology

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