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

Legal frameworks, especially in Europe, encourage private participation and competition in the management of public services. However, many local public authorities concentrate the various services they have in charge in the hands of a single operator, leading to horizontal integration which a priori minimizes the positive effects of competition. The following article tries to understand why vertical disintegration is regularly combined with horizontal integration. Results of our model show that under some conditions, this may lead to better performance at lower cost for the public authority. Such a proposition is tested and corroborated using an original database concerning the contractual choices made by 5000 French local public authorities in 1998 and 2001