Testing the Validity of the Brown-Potoski Model in the Czech and Slovak Republics

This paper is based on the new institutional economic approach, which focuses on analysis between services features (asset specificity, outcome measurability) and their eligibility to contract out. This issue, which de facto constitutes one of the subsets of the "make or buy decision" issue, is also analysed by the so-called Brown-Potoski model. It analyses the relations between selected features of a demanded service and its suitability or unsuitability for outsourcing, whilst making use of information about transaction costs economy. Using data from 100 Czech municipalities and 100 Slovak municipalities, the viability of the Brown-Potoski model is tested. The results of the research show that a connection was identified between the measurability of the required service and its suitability for external provision, but the relationship between the specificity of investments and the suitability for external provision was not. The reason is probably the previous financial demands of the initial investment, which is, above all in the case of small municipalities, beyond their budgetary means.