ABSTRACT
The range of potential organizational forms emphasizes that government delivery of goods or services does not necessarily imply direct government production, only some form of government provision. Government can finance provision of services so that they are delivered by other public organizations, for-profit firms, private not-for-profit organizations, or hybrid organizations that combine features of public and private organizations. Transaction cost theory recognizes that production costs are only part of the total costs of organizing the supply of a good or service. Production costs are the opportunity costs of the real resources—land, labor, and capital—actually used to produce something, measured in terms of the value of the things that these resources would have produced in their next best alternative use. Bargaining and opportunism generate the transaction costs of governance. Opportunism is more likely in the context of contracting out than in agency production because the question of who gets the rents is more relevant in the nonhierarchical relationships between organizations.
