Understanding the Interactions between Control, Trust, and Perceived Risk in Public Sector Joint Ventures

Purpose – This study focuses on the relationship between local governments and public sector joint ventures (JVs). Public sector JVs are separate administrative entities that undertake public service activities on behalf of local governments. The aim of this study is to examine the vertical management control packages that are used by local governments to control the relationship with their public sector JVs. Design/methodology/approach – Two case studies have been conducted in two public sector JVs, owned jointly by more than 20 local governments. The analysis of the two cases is informed by an integrated conceptual framework describing how transactional and relational factors influence control, trust, and risk in the context of public sector JVs. Findings – The case studies provide a nuanced understanding of the interplay between the vertical management control packages, trust between the parents and the public sector JVs, and risks as perceived by the local governments. The case findings not only reveal how local governments struggle with adequate outcome control but also highlight how and why they rely on behavioral control. A related finding is that while the probability of poor business performance does not have a significant impact on the design of the vertical control packages, the social impact of failure has the potential to create a sense of urgency with regard to changes in the design of vertical management control packages. Originality/value – This study adds to the literature on interorganizational relationships by providing insight into the use of vertical management control packages in the specific, but relevant, setting of public sector JVs.