Putting All One's Eggs in One Basket: Relational Contracts and the Provision of Local Public Services

The provision of local public services is increasingly being contracted out to private companies. We observe that local governments regularly choose the same private operator for a range of different services, and develop a model of relational contracts that shows how this strategy may lead to better performance at lower cost for public authorities. We test the implication of our model using an original database of the contractual choices made by 5000 French local public authorities in the years 1998, 2001 and 2004.