Cooperation Costs and the Economics of Intergovernmental Partnerships

Increasingly, state and local governments are promoting intergovernmental coordination, cooperation, and/or outright consolidation (3Cs) based on the perceived economies of scale advantages of such joint actions. However, the growing public finance and political science literature on interregional cooperation highlights the fact that transactions or other cooperation costs may preclude the realization of economies of scale benefits. Despite this evidence, some proponents go as far as to view such collaborative actions as effective policy tools for enhancing regional economic development and competitiveness. The role of cooperation costs and their relationship to economies of scale are not well documented in the literature. This paper develops a framework for evaluating the implications of cooperation costs for the effectiveness of intergovernmental collaborations. A simple cost function model is used to explain the costs and challenges associated with managing coordinated, cooperative, and consolidated relationships and the dynamic nature of such costs The analysis highlights the importance of such things as degree of complexity, inter-party diversity, and the relative sizes of collaborating partners.