IntroductionOver the past two decades the new public management (NPM) has dominated newthinking around the world, particularly in liberal democracies, about how the publicsector should be managed. The NPM advocates a shift from the traditional approachto public affairs, represented by the bureau and public enterprise, to the imitation ofmarket modes of operation (Vabo, 2009). The NPM has been driven by the demand forenhanced efficiency and accountability rather than the need to maximise other valuessuch as equity (Gregory, 2007). The ideological prepositions that underpin the NPMare public choice, agency theory, and contestability. These approaches to the conduct ofpublic business have provided the intellectual basis for purchaser ^ provider splitöatool for separating the formerly colocated policy and delivery aspects of public servicedelivery (Boston et al, 1997).

Public choice assumes that individuals, whether they are acting in the publicdomain or operating in the market, are driven by self-interestöthat is, they try tomaximise returns to themselves in whatever undertakings they are engaged in. Thus,providers, wholesalers, and retailers strive to maximise profits; consumers endeavourto obtain value for money from the goods and services they purchase; politicianswork hard to maximise votes; voters want to see the promises of an improvement intheir quality of life fulfilled by politicians; and bureaucrats are interested in maximis-ing their department budgets and power as well as personal gains from surplusbudgets.

The implication of the public choice model for the public sector is that operatives ifleft unchecked will pursue their individual self-interest to the detriment of the publicinterest. Inefficiencies in public production and distribution of goods and services willoccur as a result. So, since public agents are driven by self-interests, they should notperform the dual roles of advisors on government policy directions and implementersof agreed policy (De Laine, 1997, page 5; Ryan et al, 2000). This reasoning providedthe rationale for the introduction of the purchaser ^ provider split into the public sector.

Purchaser ^ provider split: does theory match evidencein Tasmania?

Abdulai K MohammedDepartment of Political Science, University of Ghana, PO Box LG 69, Legon, Accra, Ghana;e-mail: mkabdulai@ug.edu.ghReceived 9 July 2009; in revised form 19 April 2010

Environment and Planning C: Government and Policy 2010, volume 28, pages 958 ^ 977

Abstract. I examine the purchaser ^ provider split in the contexts of two local government areas(Hobart and Sorell) in Tasmania, Australia. I assess whether that split has delivered on the promisedeffects. I also examine the influence that context has on response outcomes to the purchaser ^provider arrangement. Specifically, I pay attention to the impact of purchaser ^ provider reform onservice spending, aggregate municipal spending, and total employment. The evidence shows that theuse of the purchaser ^ provider split is viable only for large programme expenditures. The purchaser ^provider split is not related to total municipal spending even though it may be negatively related tothe programmes that are subject to it. Savings from purchaser ^ provider reform result in increasedspending and therefore employment elsewhere in the local authority. Greater efficiency gains in somejurisdictions are attributable more to particular local favourable contextual conditions than to thepurchaser ^ provider split per se.

doi:10.1068/c09115

Agency theory is concerned with the economic costs of contracting. These are theproblems of getting managers and employees of organisations to pursue the interestsof their principals (Arrow, 1985; Ormsby, 1998; Shapiro, 2005). Agency theory isconcerned primarily with incentive problems, and the design and implementationof contracts. According to Levinthal (1988), agency theory is an extension of theneoclassical theory of the firm in that it largely focuses on `̀ the problems posed bylimited information and goal conflict within organisations'' (page 154). Principal ^agent relationships are established with the hope that agents will pursue the interestsof their principals. However, this expectation is difficult to meet in practice due toinformation asymmetry between principals and agents, and shirking, cheating, and soon from any of the parties (Arrow, 1985; Shapiro, 2005).

Accordingly, `̀ the problem of introducing an agent to behave as if he (or she) weremaximizing the principals' welfare is quite general'' (Jensen and Meckling, 1976,page 309); and `̀ while the purchaser ^ provider split may address some of these con-cerns, it cannot resolve all principal ^ agent conflict within the local governmentservice environment'' (Dollery et al, 2006, page 221). Despite this limitation, agencytheory is supportive of the notion that separating the provision of municipal servicesfrom their purchase is efficiency enhancing. More specifically, the theory posits thatcontracts can be fashioned out in a way that eradicates or reduces goal conflictöatleast between the bureaucratic purchaser and the provideröand that this yields gainsin productive efficiency.

Contestability proposes that public service delivery is more efficient where there iscompetition between public and private vendors (Boyne, 1998; Dunleavy et al, 2006;OECD, 1995). Vining and Weiner (1991, pages 1 ^ 2) offer a normative framework for`̀ understanding the efficiency consequences of alternative patterns of governmentsupply.'' Their model is informed by the theory of contestable markets, which aredefined by the absence of significant barriers to entry or exit (Baumol et al, 1982).Vining and Weiner (1991, page 6) describe two forms of contestability: contestability ofsupply (which acts as a substitute for direct provision) and contestability of ownership(which describes the threat of transfer of ownership of an organisation). They contendthat, where contestability in both its forms is high, production will be more allocativelyefficient, and X inefficiency is less likely to crop up. The implications from their modelof contestable government production is that separating the purchaser from the pro-vider is conducive to contestability in both its forms: first, the purchaser ^ providersplit can be used to enforce contestability of supply; and, second, it increases thelikelihood that an element of municipal government might be divested to the privatesector, or even another level of government (Dollery et al, 2006). Accordingly, thepurchaser ^ provider split is expected to enhance efficiency.

The NPM advocates the use of the principles of these theoretical propositionsto undergird public sector reform in order to improve that sector's efficiency andeffectiveness. One organisational form proposed by the NPM for achieving this is thepurchaser ^ provider split.

I assess the impact of the implementation of the purchaser ^ provider split in twolocal government areas in Tasmania (Hobart and Sorell), Australia. These case studiesprovide important insights into the problems associated with using purchaser ^ providerarrangements to compel not only more efficient service delivery and employmentpractices in areas that are subject to it, but also jurisdiction-wide improvements. Thesecases reveal the immense influence that context has in the achievement or otherwise ofthe predicted effects of the purchaser ^ provider split ^ an area that has received scantor no attention in the literature. The case studies provide practical findings that can be

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used in policy formulation as well as new theoretical understandings of the relationshipof purchaser ^ provider arrangements to public service delivery and management.

In Tasmania the introduction of market reforms, and purchaser ^ provider struc-tures into local government, followed upon other changes such as amalgamation,legislative and managerial reforms, rationalisation of roles and functions, and financialand accountability reforms. These reforms have been collectively named the `modern-isation process'. The modernisation process has led to the pursuit of at least twoagendas: first, the improved management of resources; and, second, governance issuesand especially the redefinition of roles and responsibilities of the various actors in localgovernment. The first agenda has been seen as initiatives aimed at making councilsmore business like and more accountable for their resources and has required thedelivery of high-quality services at reduced costs. All Tasmanian councils, includingthe Hobart City Council (HCC) and Sorell Council, can be considered to haveembraced the language of the NPM. Like most local governments across Australia,municipal reforms in Tasmania (modernisation process) have brought about financialmanagement improvement, devolution, clearer and stronger accountability regimes,performance evaluation, and strategic management (Aulich, 1997). To ensure thatservices are delivered in a more efficient fashion, councils have employed an array ofmodels such as resource sharing, competitive tendering and contracting, increasingmarket influences on pricing of their goods and services, municipal amalgamation,and updating technology to facilitate delivery of servicesöfor example, one-stopshops, online programmes, and quality accreditation (HCC, 2008).

As a consequence it has been difficult to isolate the impact of specific managementstrategies from the outcomes associated with the implementation of the purchaser ^provider split. Nevertheless, I attempt to investigate the extent to which the split hascontributed to improved organisational outcomes in terms of service spending andemployment practices against the backdrop of all other conceivable contributoryvariables.

It is argued that the benefits sometimes associated with the purchaser ^ providersplit are specific to some of the programmes to which it is subject. This implies thatin other cases these outcomes are able to be achieved within traditional publicservices structures. I conclude that greater efficiency gains in some jurisdictions areattributable more to particular local favourable contextual conditions than to thepurchase ^ provider split per se.

The Tasmanian caseTwo local government areas (Hobart and Sorell) in Tasmania, Australia have beenchosen because they provide a basis for a comparative study centred on a significantpoint of difference: full purchaser ^ provider split versus less-than-full institutionalseparation. This comparative study has allowed for an in-depth analysis of the impactof the purchaser ^ provider splitöbringing out symmetries and/or asymmetries inresponse outcomes. This has allowed the theoretical implications of the studies to bedrawn out.

Hobart and Sorell Councils have implemented the tenets of the purchaser ^ providersplit to varying extents. The councils have each appointed a general manager on arenewable contract to replace the former security-of-tenure town clerk. All depart-mental heads in turn sign individual five-year contracts with the general manager.These changes have given the general manager more executive power and controlover the departments. However, the HCC has gone beyond this to actually separatepolicy responsibilities from operational matters. It established, on the provider side,Civic Solutions, under section 37 of the Local Government Act 1993, as a single entity

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to undertake civil and environmental construction works in full competition with theprivate sector. Although the requirement that Civic Solutions compete fully withthe private sector has been scrapped, it remains a provider side of the council. CityServices was also set up on the purchaser side to handle all client functions in respectof services that are provided by Civil Solutions. The relationship between City Servicesand Civic Solutions is governed by contracts. All other provider departments renderservices on the basis of service-level agreements with the council.

The creation of purchaser ^ provider structures and the use of contracts and service-level agreements to mediate behaviour between the council's purchaser and providerunits has changed the organisational structure and lifted the council onto the platformof a market-oriented future. This has provided the maximum level of independenceand freedom to enter the competitive market of the future irrespective of the type andextent of competition that may eventuate (Ryan, 1997).

Sorell Council, apart from appointing a general manager has not followed in thefootsteps of the HCC as it has not separated the roles of purchaser and provider.The council has a programme-oriented structure that links the different departments.Integration is achieved across the council by subsuming provider functions underprogrammes, and their performances are appraised in relation to their contributionto the overall strategic direction of the council.

MethodologyAs mentioned earlier, two local government areas (Hobart and Sorell) in Tasmania,Australia have been studied in relation to the impact of the implementation of thepurchaser ^ provider split. Because access and participation had to be negotiated, andthis varied from local authority to local authority, this constrained the choice of thestudy councils, confining both the number and the combination of local governmentsI would have wished to include in the study. The empirical basis for these case studiesis content analysis of published documents of the two councils and twenty-four inter-views with key informants, with these respondents in each council initially identified bytheir professional responsibilities and interests in the purchaser ^ provider split policyand practice. Fourteen people from the HCC were interviewed. These respondentsincluded two managers each from the purchaser and provider sides. Others were tenmembers of the Client ^ Provider Advisory Group. In Sorell Council nine informants,four managers and five members of the Supervisory Team of Provider Units, wereinterviewed. The unequal number of interviewees for the council is explained by thefact that access and participation had to be negotiated and this varied from the HCCto Sorell Council. The interviews provided a means for exploring complexity and detailof process which could not be examined by alternative more structured instrumentssuch as questionnaires or analysed using quantitative methods (see Liamputtong andEzzy, 2005).

The main limitation of this study is that its findings cannot be used to generalise tolarger populations and applied to different social and political settings. Most researchis concerned not only with the effect of one variable on another in a particular settingstudied but also with its effect in other natural settings and on larger populations.However, these weaknesses are compensated for through an in-depth analysis of thecases. The advantage of this in-depth analysis is that it is suited for the development ofwhat Diesing (1971, page 196) describes as typological theory and what George (1979,page 59) refers to as `̀ rich differentiated theory'', which, in contrast to a generalexplanatory theory, is cast in the form of contingent generalisations and has thecapability for more discriminating explanation (George et al, 1971, page 511; Gerring,2004).

Purchaser ^ provider split 961

HypothesesFour hypotheses have been formulated and tested in this study: H1, H2, H3, and H4.They are expounded upon in turn.

Hypothesis H1: The use of the purchaser ^ provider split will be viable only for largeprogramme expenditures.

The rationale for proposition H1 is that, even though many studies of the purchaser ^provider split posited efficiency gains in the costs of providing public services (seeAulich, 1997; Everett, 2006; Gerdtham, 1999; Sverbo, 2004), transaction and surveil-lance costs associated with the use of this mode of service delivery have been foundto be high (Evans, 1990; Propper and Soderlund, 1998) and could in fact cancel outany savings made. In that case it could be expected that purchaser ^ provider arrange-ments will be viable only for large programme expenditures. This is because largeprogrammes will gain substantially from scale economies (Dollery et al, 2006) andcompetitive supply which will in turn reduce unit cost. These benefits would not accrueto the same extent, if at all, if the service activity were smallöbecause high transactioncosts would drastically reduce or cancel out any marginal gains made.

Hypothesis H2: The incidence of the purchaser ^ provider split will not be related to totalmunicipal expenditure.

This hypothesis provokes a number of questions: Are there any savings from apurchaser ^ provider mode of service delivery? If yes, where do the savings go? Doagencies and bureaus redistribute the savings within their organisation, or are thesemonies returned to the central government or municipal authority's coffers for redis-tribution to other agencies or as reduced taxes and spending? Do the existence andlevel of savings from purchaser ^ provider reform vary with the service activity? And arethese savings cumulative across a council's entire repertoire of services subject tothe purchaser ^ provider split? If these savings vary across all services subject to thepurchaser ^ provider split, and are not cumulative, or are internalised by agenciesrather than returned to council's coffers, then a purchase ^ provider split does notlead to a reduction in total municipal spending. This prediction is not surprising assavings can be expected to be used to expand other services because of the model oflocal government that seems plausible (that is, the supply-side, Leviathan model). Onlyif the model of local government were the median voter (demand-side) model wouldwe expect a reduction in the aggregate budget (Bailey, 1999). Agencies making savingsfrom services provided competitively under the purchaser ^ provider split reduce theirbudget requests rather than cut spending. Savings accruing from the implementationof the purchaser ^ provider split precede a reduction in the agencies' budget requestsand the cumulative impact this has on total municipal service spending.

Hypothesis H3: The incidence of the purchaser ^ provider split will not be related to totalmunicipal employment.

Ferris (1988) argues that competitive supply, as implied by the purchaser ^ providersplit, has a significant effect on aggregate levels of municipal employment and totalspending. He contends that contracting reduces total employment and spending levels,but not through the replacement of municipal workers with cheaper private sectorlabour. The savings accruing to local authorities using contracted supply derive fromthe reduction in the size of the workforce. The implication is that the same level andquality of service performance is achieved with fewer workers. However, Ferris (1988)is reluctant to draw this conclusion, pointing out that ``this effect may be attributableto cost savings, reduced service levels or both'' (page 215). Even if Ferris's fears of

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diminution of service levels and quality are allayed and the savings are in fact tangible,the question that still arises is whether these savings do not lead to increasedspending and therefore employment elsewhere in the local authority. SuppositionH3 has therefore been framed in support of this alternative reasoning that savingsfrom purchaser ^ provider reform will lead to increased spending and employmentelsewhere in the local authority. This is because the implementation of purchaser ^provider arrangements requires high-calibre personnel whose demand increases afternonessential staff are laid off. The reengagement of new hands will increase councilcost.

Gleaning efficiency gains from the use of purchaser ^ provider split is not conclu-sive of significant savings. Efficiency gains from purchaser ^ provider arrangements areof little value to municipal governments and public service customers if these gainscannot be converted into concrete benefits for them to enjoy. Although there may existrival explanations of efficiency gains from nonbureaucratic supply, it is budgetarypolitics that illuminate how and when these savings will be translated into policyoutputs. Any savings accruing from the use of the purchaser ^ provider mode of servicedelivery will be internalised by agencies or departments rather than transferred to thelocal authority for redistribution to other services or as a form of tax reduction. Thiswill be acceptable to the chief executive officer (or whatever title the head might beassigned) of the council in order to prevent pressure for budgetary increases fromthe departments, which has the potential of defeating his or her budgetary goal of ano-tax-increase budget (Stein, 1990). This means the savings will have no effect onemployment. Stability of or reduction in taxes has electoral advantages for the chiefexecutive officer. It is argued here that, unless reformers more explicitly acknowledgeand factor into their reform agenda this dimension of reality about the effect of thepurchaser ^ provider split, the actual advance by the split may be undermined.

Hypothesis H4: The outcome of the application of the purchaser ^ provider split will be afunction of context.

Proposition H4 has been formulated to reflect the fact that the purchaser ^ providersplit might not be the optimal approach for delivering public services in different localgovernment areas with different circumstances such as size, scope of contracts, andservice objectives (Bailey and Davidson, 1999, page 172). It has also been constructedwith the reasoning that response outcomes to the implementation of the purchaser ^provider split are likely to vary with: the extent of competition in the different councilmarkets; the differences in the characteristic of the bureaucracy in the different juris-dictions (such as its ideological predispositions, interests, and values); the inequalityof bureaucratic support and capacity in the characteristically dissimilar councils; andthe unequal outlays that councils devote to fund the implementation of the purchaser ^provider split. Moreover, other reforms that preceded the purchaser ^ provider splitösuchas amalgamation, legislative and managerial reforms, and rationalisation of roles andfunctionsöprovided more favourable environments in some jurisdictions than othersfor the implementation of purchaser ^ provider arrangements. However, irrespective ofcontext, the purchaser ^ provider split has required more high-skilled employees and sobrings a change in culture that has a positive view of the NPM and the purchaser ^provider arrangement. The implication of all this is that, since no two contexts areexactly the same, there is potential for asymmetries in response outcomes to any policyintervention to occur in the different jurisdictions. Thus, differences in impact aremore likely to result from the implementation of the purchaser ^ provider split incharacteristicaly different local authority areas. These potential differences provide anopportunity to undertake comparative research, as in this case, where study cases with

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different contextual conditions have been compared and contrasted. Mapping thecontexts of problems and issues makes it possible to understand the multiple dimen-sions of knowledge, beliefs, and power, as well as meaning and values that frame policymaking and implementation.

Service responsibilities of Hobart and Sorell CouncilThe forty-four functional areas on which data were collected covered nine traditionalcategories of municipal services: public order and safety; health; welfare; communityamenities; recreation and culture; economic services; transport; water supply; andsewerage (see table 1). These functional areas were determined after examining theservices that are provided by most of the twenty-nine councils in Tasmania. The servicesthe HCC and Sorell Council set themselves to provide for their communities were alsotaken into consideration in determining the functional responsibilities. Uncommonservice categories for which only one council has service responsibility were excluded(for example, parkingöespecially off streetöprovided only by the HCC).

Table 1. Municipal service categories and responsibilities (source: annual reports of the HCCand Sorell Council).

Service category Functional responsibility

Public order and safety Fire prevention a

Emergency management a

Health Food control a

Immunisation services a

Animal control a

Environmental management a

Welfare Childcare a

Youth services a

Aged care services

Community amenities Solid waste managementStorm water drainagePublic management a

Public convenienceStreet lightingCouncil-owned propertiesAdministration of the planning scheme a

City cleansingWaste collection and recyclingAsset maintenanceAsset constructionCommunity development

Economic services Salmanca market b

Tourism promotion

Recreation and culture Maintenance of public hallsTattersall's Hobart Aquatic Centre b

Recreation centreParks and reservesCaravan parkLibrary service a

FestivalsThe nursery b

Parks depot b

Cultural development a

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Table 1 (continued).

Service category Functional responsibility

Transport Construction and maintenance of roadsConstruction and maintenance of footpathsConstruction and maintenance of bridgesTraffic signsHot Mix Plant b

Water supply Purchase of bulk waterWater reticulationWater quality control

Sewerage Sewage reticulationSewage treatmentDischarge of sewage effluent

a Service provided in the Hobart City Council (HCC) only.bThese are functional responsibilities (services) that are not provided under the purchaser ±provider arrangements in the HCC (they total twelve functional fields out of a total of forty-fourfunctional areas provided only by the HCC). This study covers the period from 1989/90 to2004/05. However, the purchaser ± provider split (PPS) was introduced into the HCC in 1995/96, meaning that, for the nine years (1995/96 to 2004/05) for which the PPS was in operationin the council, the proportion of the HCC's services that were provided under the splitaveraged 72.4%. But, when the whole study period of sixteen years (1989/90 to 2004/05) isconsidered, the proportion of the HCC's services that were provided under the PPS averaged40.7%. This latter proportion is what has been adopted and reported in table 2.

Table 2. Operational measures and sources.

Concept Operationalisation Council Mean

Per capita income a Mean 1989 per capita family HCC AUS$21 693(PCIN) (household) income Sorell AUS $21 693

Functional scope b Percentage of forty-four services the HCC 83.8(FUNCT) municipality provides Sorell 61.87

Grants b State and federal aid as a percentage HCC 6.7(AID) of total own source revenue Sorell 29.9

Municipal workforce b Number of municipal employees HCC 571.3(MUWF) Sorell 56.6

Public wages b Average monthly gross municipal HCC AUS$3 130(PUBPAY) wages and salaries Sorell AUS $2 827

Tax burden c Per capita rates paid as a percentage HCC 4.3(TAXB) of per capita personal income Sorell 24.7

Population d 1989 populations size HCC 47 623(POP) Sorell 9 992

Purchaser ± provider split b Proportion of council services provided HCC 40.7(PPS) under the purchaser ± provider split Sorell Nil

Total expenditure b Total municipal service spending HCC AUS$51.95m(TOTEXP) Sorell AUS $8.2 m

aAustralian Bureau of Statistics: Australian National Accounts, State Accounts 5220.0Ð2003/04.bAnnual reports of the HCC and Sorell Council from 1989/90 to 2004/05, and interviews ofmanagement of both councils in March 2004.c Australian Bureau of Statistics: Australian National Accounts, State Accounts: 5220.0Ð1998/99, 1999/2000, 2003/04.d Tasmanian Year Book from 1989/90 to 2004/05.

Purchaser ^ provider split 965

Also excluded were administrative services such as information technology andhuman resource management, legal services, financial services like strategic financialplanning, corporate services, as well as other internal support services. The number ofservices provided by the purchaser ^ provider arrangement is a function of the numberof goods and services for which a council has responsibility. Thus the incidence of thepurchaser ^ provider split, expressed as the total number of services provided by acouncil, is a misleading measure of this policy activity. The appropriate measure isone that examines services supplied under the purchaser ^ provider split as a propor-tion of all services provided by a municipality. For this study I use this approach in theanalysis of the purchaser ^ provider split in the HCC and Sorell Council. The nineservice categories identified previously are used as the classification to assign each ofthe forty-four functional responsibilities to one category (see table 1).

Variables and their operational measuresWith the empirical analysis I examine the service spending and employment effects of thepurchaser ^ provider split. I also examine the influence of context on response outcomesto the purchaser ^ provider split. Since many factors, including the purchaser ^ providersplit, influence or are responsible for changes in municipal governments' service spend-ing and employment, it is important to isolate the part played by the split throughregression analysis of the relevant variables. These variables and their operationalmeasures are explicated and reported in table 2. Tax burden measures the ratiobetween per capita municipal taxes paid and per capita personal income. This measureis an indicator of fiscal effort because it shows the revenue-generating capacity of amunicipal authority. The stronger this capacity is, the greater the revenue that localgovernments can net. As an indicator of fiscal effort, this measure is expected to bepositively related to the level of municipal spending and employment (Stein, 1990,page 482). The rationale for this expectation is that the revenue is largely internallygenerated and municipal authorities have much discretion, unlike intergovernmentaltransfers, over how they spend this money. The bigger the municipal revenue from tax,the greater the tendency of local authorities to expand their existing services or to addnew ones to their repertoire of functional responsibilities. Conversely, the smaller theamount of internally generated funds, the higher the chances that local authoritieswould learn to do more with little. This is particularly true in Australia now thatintergovernmental transfers from upper levels of government are dwindling. It is alsoreasonable to expect that the expanding service responsibilities will call for more handsto do the job.

Population size provides a measure of congestion associated with public serviceresponsibility. A positive relationship between population size and policy outputs ishypothesised as evidence of contestable goods and services in the local authority (Stein,1990). The small Tasmanian market does not allow for gains from competitive andcontestable supply to be realised. While this is a state-wide issue, the problem is moreacute in small and rural councils such as Sorell than in large and urban ones like HCC.It is therefore expected that the HCC will have a bigger and more contestable markettogether with its associated efficiency benefits in service provision than Sorell Council.

The scope of municipal functional responsibility is predicted to be positively relatedto levels of spending and employment (Dye and Garcia, 1978; Liebert, 1976; Ryan et al,2000; Stein, 1981). `̀ Increased scope of functional responsibility is associated with adifferent mix of services, one which includes a greater responsibility for expensiveredistributive social services'' (Stein, 1990, page 482). The result is that, as a councilexpands its functional scope, it assumes responsibility for goods and services that havehigher per unit costs of service arrangement.

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Greater dependency on federal and state intergovernmental transfer should bepositively related to the level of municipal policy outputs (Stein, 1990). `̀A lump-sumgrant to a municipal authority is, in effect, equivalent to an increase in income''(Dollery et al, 2006, page 106) (that is, represented by a parallel and outward shift inthe budget constraint facing the median voter). However, there is ample empiricalevidence that grants to local governments produce substantially more spending onpublic goods than that which could be attributed to the income effect attendanton lump-sum grants [for a summary of empirical results, see, for example, Hines andThaler (1995)].

Higher mean personal income should be positively related to the level of municipaloutputs (Stein, 1990). Higher personal incomes are indicative of robust productiveeconomic activities in the local area. A vibrant local economy has implications forthe regulatory costs of providing services. If the volume of economic activities is high,local authorities would have to be engaged in expensive regulatory effort to ensure thatthe rules of the market are obeyed. Moreover, high personal incomes would compel ademand for a wider range of services by local people.

The increase in demand will force local governments to spend more on providingthese services. However, since customising services to meet individual preferences andtastes is a difficult exercise, this may result in allocative inefficiency in the provision ofthese services.

Estimates of employment levels include gross wages and salaries paid to municipalemployees. It is expected that this relationship will be negative, reflecting the operationof a budget constraint between the size of municipal labour force and the averagemonthly wage and salary. Given a fixed municipal budget, an increase in the workforcemust be balanced by a smaller per worker wage rate (Stein, 1990). Apart from munic-ipal wage and salary rate, the proportion of municipal workforce unionised could alsobe a partial determinant of the size of the municipal labour force. The effect of union-isation on municipal workforce size is ambiguous. Assuming the operation of a budgetconstraint between employment levels and wage rates, union representation should benegatively related to level of public employment (Stein, 1990). However, it is possiblethat union representation could serve both to expand the municipal workforce size andto increase wage rates. Union representation was not included as a variable forestimating municipal employment because of unavailability of data. All estimates ofspending and employment are expressed in a log-linear form and are interpreted as thepercentage change in spending and employment with a one percent change in the valueof an independent variable (that is, elasticity).

The impact of purchase ^ provider split on Hobart and Sorell CouncilsThe separation of policy from operational activities and the use of competitive pro-cesses, it is argued, will reduce the costs of providing services (Aulich, 1997; Dunleavyet al, 2006; Ormsby, 1998). Money expended on municipal services represents a majorpart of municipal input costs. It is reasonable to believe that if these costs were reducedthe efficiency of local governments would improve. In this section I assess the impactof the purchaser ^ provider split on local authority service spending, aggregate munic-ipal spending, and total employment of the HCC and compare and contrast theseeffects with those of Sorell Council. Differences and similarities in the behaviour ofthese variables in the two councils will provide the basis for assessing the impact of theimplementation of the purchaser ^ provider split.

Purchaser ^ provider split 967

Service-category-level effects of the purchaser ^ provider split in the HCCAs hypothesis H2 predicted, the incidence of the purchaser ^ provider split in the HCChas generally not led to reduction in spending levels of a significant number ofindividual functional responsibilities (see table 3). From the evidence it can be statedthat the purchaser ^ provider split has not led to expenditure reductions in the HCC'shealth services, welfare services, community amenities, recreation and culture services,or sewerage services. The purchaser ^ provider split is related to lower spending levelsfor two functional responsibilities (that is, economic services, and water supply) andnegatively but insignificantly associated with the provision costs of services for twofunctional responsibilities (that is, public order and safety, and transport). From thisevidence it can be stated that the purchaser ^ provider split has a greater effect, interms of reduction in service spending, on economic services than on water servicesand transport services.

The effect of the split in reducing service cost is greater for water services thantransport services. This evidence implies that the benefits sometimes associated withthe purchaser ^ provider split are specific to some of the programmes to which it issubject, meaning that in other cases these outcomes are able to be achieved withintraditional public service structures.

The implication of this is that improved outcomes are more likely to result fromadopting innovative management practices than from the introduction of market orpurchaser ^ provider arrangements. The majority of the respondents in the HCCattested to this assessment, saying that efficiency gains in the council could not beaccounted for more through the introduction of purchaser ^ provider arrangementsthan via X efficiency or dynamic efficiencyöthe benefits made by streamlining orga-nisational improvement. For example, two managers argued that managerial reformsthat were introduced well before the implementation of the purchaser ^ provider splithad made Tasmanian councils more results oriented and more accountable for theirresources, and have required the provision of high-quality services.

Table 3. Effects of purchaser ^ provider split on service-category-level spending of the HobartCity Council (t-value, b, significance).

Service category Total service-category expenditure (TOTEX)

t-value b significance adjusted R 2 standard errorof the estimate

Public order and safety ÿ0.635 ÿ0.133 0.543 0.947 116 594.863Health 1.723 0.366 0.123 0.945 59 558.379Welfare 1.815 0.218 0.107 0.982 72 619.946Community amenities 0.814 0.269 0.439 0.867 1 162 758.296Recreation and culture 2.914 0.662 0.019 0.937 1 022 810.115Transport ÿ0.217 ÿ0.077 0.834 0.845 1 232 769.591Economic services ÿ1.715 ÿ0.586 0.125 0.866 148 494.070Water supply ÿ1.642 ÿ0.435 0.139 0.915 486 677.560Sewerage 1.642 0.462 0.153 0.915 306 174.499Number of years observed 16 16 16 16 16

P < 0:05, two tailed test.

Note: Regression estimates for service-category-level expenditures were derived from an equationthat included per capita personal income, functional scope, dependency on intergovernmentalaid, municipal workforce, population, tax burden, and purchaser ± provider split.

968 A K Mohammed

The reforms also compelled them to discipline public expenditure, improve financialmanagement, and introduce performance evaluation and strategic planning. Thesemeasures, they added, yielded the efficiency dividends. Another manager, on hispart, noted that, although the HCC was not affected by the Tasmanian government'sAmalgamation Policy, the council strived to achieve its predicted effects such as:improvements in service delivery; savings on administrative costs; reduced level ofdebt; and increased revenue. The council endeavoured to achieve these objectives as ahedge against amalgamation being forced upon it.

In other service activities where efficiency gains have been realised, these savingshave been internalised by the agencies or departments concerned. A fourth seniormanager seemed to allude to this when he noted that each department or division ofthe council has its priorities which are not equally funded. So it is not uncommon forsavings accruing from one service activity to be used to prop up an underresourcedarea with unfinished business on its hands.

The inference from this evidence is that savings from purchaser ^ provider reformdo not result in lower total agency (department) and municipal spending. This evidenceis consistent with the proposition made earlier that an agency's retention of savingsfrom competitive contracting processes implied by the purchaser ^ provider split shouldnot alter its total level of spending (Stein, 1990).

The expenditure changes within the agency together with transaction costs willcancel out any savings made. Transaction costs associated with the purchaser ^ providersplit, which are not separate from line items, were incurred and were probably high. Allthe nine interviewees of the Client ^ Provider Advisory Group and one managerattested to this, saying that even though these costs were considerably high they couldnot be determined since they could not be decoupled from line terms. In that casethe purchaser ^ provider split will be viable only for large programme expenditures.This is because significant gains from scale effects and competition will drasticallyreduce unit cost. These gains will not accrue to the same extent, if at all, if the serviceactivity is small. This evidence upholds H1, which predicted that the use of thepurchaser ^ provider split will be viable only for large programme expenditure.

Aggregate policy effects of the purchaser ^ provider splitEvidence from the HCCThe combined effects of the factors that influence or lead to changes in total municipalservice spending and employment of the HCC are estimated by regression analysisand reported in table 4. As the table indicates, the coefficient of determination(adjusted R 2) of total municipal service spending is very high at 0.979%. This impliesthe variations in the HCC's total service spending are mostly accounted for by thecombined effects of per capita income, functional scope, dependency on intergovern-mental aid transfers, municipal workforce, tax burden, population of municipality, andthe purchaser ^ provider split.

The coefficient of determination (adjusted R 2) of total HCC employment is 0.78%,meaning that 0.22% of the variations in the HCC's total employment are not explainedby the identified variables. Consistent with prediction, the split is not associated withlower levels of spending on the HCC's services as indicated by the positive t-value(1.738) and the lower b coefficient (0.213) of the purchaser ^ provider split. Hence, itcan be concluded that the purchaser ^ provider split has not led to reductions in theHCC's total service spending. Since total municipal service spending has not reducedwith the incidence of the purchaser ^ provider split, it implies that the split has noimpact at all on aggregate local authority spending. This finding validates H2, whichstates that the incidence of the purchaser ^ provider split will not be related to total

Purchaser ^ provider split 969

municipal spending. This evidence has not been invalidated by views of respondentsbecause, while the majority of them indicated that the council has become far moreconscious of the costs and quality of services it provides with the incidence of thepurchaser ^ provider split, they could neither confirm nor deny that service expenditurehas decreased.

The results are inconsistent with the experience of some councils in Victoria andNew South Wales (NSW). For example, the Council of Sydney, which realigned intopurchaser and provider groups and separated asset management from asset ownershipresponsibilitie, introduced competitive tenders for the provision of some services.

Services such as property management, parks maintenance, and light fleet manage-ment were competitively tendered and won by external providers, while street cleaningwas won by an in-house team. The council reported that savings of AUS$7 million perannum were achieved (Applied Economics, 2004). In Victoria the Mornington Penin-sula Council restructured itself by separating out the purchaser and provider functionsin relation to the maintenance of physical infrastructure. It created a Contract Man-agement Unit to handle the client functions. An in-house provider unit within theEngineering Division was established to compete for contracts. External providerswon the contracts and provided the services at annual costs savings of AUS $5 million(Applied Economics, 2004). However, the evidence from Victoria should be treatedwith caution because Alford and O'Flynn (2008) argue that the split underminesanother of its essential mechanismöthat is, the specification of services. They contendthat separating purchasing from service provision creates remoteness of staff frommanagers, thus blocking employees' willingness to share the relevant information

Table 4. Regression estimates for total service spending and employment of the HCC (t-value, b,significance).

Determinants and Total service expenditure (TOTEXP) Municipal workforce (MUWF)other items

t-value b significance t-value b significance

Intercept ÿ0.965 ± 0.363 ÿ0.545 ± 0.599Per capita income 4.612 1.026 0.002 ÿ1.655 ÿ1.616 0.132

(PCIN)Functional scope ÿ1.115 ÿ0.273 0.297 1.789 1.869 0.111

(FUNCT)Grants (AID) ÿ1.862 ÿ0.072 0.100 ÿ1.330 ÿ0.688 0.509Municipal workforce ÿ0.261 ÿ0.017 0.801 ± ± ±

(MUWF)Municipal wages ± ± ± ÿ1.453 ÿ2.149 0.184

(PUBPAY)Tax burden (TAXB) 0.330 0.022 0.750 ÿ1.620 ÿ0.477 0.143Population (POP) 1.063 0.095 0.319 0.515 0.258 0.620Purchaser ± provider split 1.738 0.213 0.120 ÿ0.040 ÿ0.036 0.969

(PPS)Adjusted R 2 0.979 0.979 0.979 0.777 0.777 0.777Number of years 16 16 16 16 16 16

observed

P < 0:05, two-tailed test.

Notes: Regression estimates for total service expenditure were derived from an equation thatincluded functional scope, population, per capita personal income, tax burden, dependency onintergovernmental aid, municipal workforce, and purchaser ± provider split. The equation foremployment included the monthly wage and salary rate for municipal workers and all thevariables used in the determination of total expenditure; standard error of the estimate for totalservice expenditure � 1 876 210:258; standard error of the estimate for employment � 25:477.

970 A K Mohammed

regarding services (Alford and O'Flynn, 2008). This information gap militates againstthe efficient delivery of services.

The inconsistency of the Tasmanian evidence with that of NSW and Victoria isexplained by the fact that the Tasmanian market is smaller than the markets of themainland states. This does not allow the benefits from competitive and contestablesupply to be realised. While this is a state-wide issue, the problem is more acute inrural councils like Sorell than urban ones such as the HCC.

Hypothesis H3 predicted that the incidence of the purchaser ^ provider split willnot be related to total municipal employment. This prediction has been confirmed bythe evidence. Preliminary results from the analysis indicated that the relationshipbetween the purchaser ^ provider split and total HCC employment is negative. The useof this service delivery mode reduces total municipal spending by reducing the size of themunicipal labour force. Since personnel are one of the most important inputs ofservice production, the reduction of the cost of this input ultimately reduces thereduction of the costs of services provided. This evidence is confirmed by the majorityof the informants. In particular, one of the departmental managers revealed that hisoutfit's workforce decreased by fifty over the first six years (1996 to 2001) since theintroduction of the purchaser ^ provider split. The implication of this statistic is thatthe organisational restructuring that has occurred under the purchaser ^ provider splithas, in part, enabled the HCC to better tame growth in employee numbers (comparethe 1989/90 total workforce of 640 with the 530 total employees in 1999/2000) (HCC,1989; 2000). However, it seems probable that the employment reduction in some areashas led to increased spending and therefore employment elsewhere in the local author-ity. This is evidenced by the growth of total municipal employment by 10.2% from1999/2000 to 2004/05 (HCC, 2005).

This interpretation seemed to have been validated by one client-side manager andone provide-side manager, both of whom indicated that, even though the incidence ofthe purchaser ^ provider split has led to some employees (mostly nonessential andmanual workers) losing their jobs, other requisite professional staff such as civilengineers, environmental experts, and trainers in sporting activities as well as urbanplanners have subsequently been engaged. The informants revealed that departmentalheads put in compelling reasons why these staff had to be employed. This finding iscongruent with Stein's (1990) argument that internal and external service providershave budgetary preferences which are potentially at odds with the chief officer's desireto discipline budgets.

The efficiency gains from competitive processes derive partly from the employmentof fewer staff (Cutler and Waine, 1994). Unfortunately, many of the employees whohave been laid off by the HCC are unskilled and most likely would not have foundjobs elsewhere, especially during a period of considerable unemployment in Tasmania.It seems probable, then, that part of the local savings from the implementation of thepurchaser ^ provider split is offset by an extra burden (in the short to medium term) onthe national social security budget. This serves to qualify a broader problem with theintroduction of market forces into the public sector. As in the private sector, competi-tion or the threat of competition can lead to negative externalities which impose costson other organisations. Such indirect effects of imitating market tactics in the publicsector may be viewed as an example of `̀ quasi-market failure'' (Boyne, 1998).

The estimated elasticity for the purchaser ^ provider split is significantly (P < 0:05)more responsive for employment (in terms of reductions in the costs and levels of theinput) (ÿ0:040) than service spending levels (1.738). This may be attributable to tworeasons. First, ``Cities may undervalue their labour, particularly for labour intensivegoods and services which make up most of a city's functional repertoire'' (Stein, 1990,

Purchaser ^ provider split 971

page 491). This fosters a tendency for local authorities to indulge in inefficient (that is,excessive) employment practices. As Stevens (1984) argues, it is this inefficient use oflabour that service contracting remedies. `̀ Contracted labour practices are significantlymore flexible, providing contractors opportunities for obtaining efficiency gains overmunicipal labour management'' (Stein, 1990, pages 491 ^ 492). Second (closely relatedto the first point), the value municipal managers attach to nonunionised council labourforce in part explains this tendency. McGuire et al (1987) contend that the incidence ofcontracting is associated with the scope of union representation and the frequencyof labour turmoil (that is, job actions and strikes). Local governments have an inclina-tion, independent of cost savings, to minimise the uncertainty and tension caused byunion representation of public employees (Stein, 1990, page 492). `̀ This is achievedby replacing unionised public employees with non-unionised contracted workers.''

Evidence from Sorell CouncilThe regression estimates for total service spending and employment of Sorell Councilare discussed in comparison with those of the HCC and reported in table 5. SorellCouncil has not adopted the purchaser ^ provider split so the model is not included asan independent variable in the estimation. As the table indicates, the coefficient ofdetermination (adjusted R 2) of total municipal service spending and employment arevery high at 0.905 and 0.967, respectively. This means the variations in Sorell Council'stotal service spending and employment are mostly explained by the combined effectsof the independent variables including per capita income, intergovernmental aidtransfers, municipal workforce, gross wages and salaries for municipal employees, taxburden, functional scope, and population. Three of the independent variables (that is,per capita income, functional scope, and grants) are negatively related to spendinglevels in Sorell Council, compared with three (that is, functional scope, municipalworkforce, and intergovernmental aid transfers) also in the case of the HCC.

Table 5. Regression estimates for total service spending and employment of Sorell Council(t-value, b, significance).

Determinants and Total service expenditure (TOTEXP) Municipal workforce (MUWF)other items

t-value b significance t-value b significance

Intercept 0.973 ± 0.356 0.146 ± 0.886Per capita income (PCIN) ÿ0.244 ÿ0.234 0.813 7.40 1.581 0.004Functional scope ÿ0.678 ÿ0.176 0.515 ÿ1.8 ÿ0.241 0.101

(FUNCT)Grants (AID) ÿ0.331 ÿ0.032 0.748 ÿ0.609 ÿ0.034 0.557Municipal workforce 1.763 1.002 0.112 ± ± ±

(MUWF)Municipal wages ± ± ± 0.271 0.029 0.792

(PUBPAY)Tax burden (TAXB) 0.302 0.079 0.769 ÿ3.5 ÿ0.345 0.007Population (POP) 1.190 0.337 0.264 ÿ0.771 ÿ0.133 0.460Adjusted R 2 0.905 0.905 0.905 0.967 0.967 0.967Number of years 16 16 16 16 16 16

observed

P < 0:05, two-tailed test.

Notes: Regression estimates for total service expenditure were derived from an equationthat included per capita personal income, functional scope, population, dependency onintergovernmental aid transfers, and the tax burden. The equation for employment includedgross monthly wage and salary rate for municipal workers, and all the variables used in thedetermination of total service spending; standard error of the estimate for total serviceexpenditure � 600 595:912; standard error of the estimate for employment � 3:011.

972 A K Mohammed

However, as the values indicate, the net effects of the majority of the independentvariables in the HCC (in terms of reducing service spending) are much greater thanthose of Sorell Council.

Municipal workforce size is negatively related to total service spending levels butpositively correlated to total service spending in the case of Sorell Council. A possiblereason for these findings is that the HCC, by separating the provision of goods andservices from their production and delivery, achieved significant savings from twosources: contestability and competition, and scale effect. These gains could not accrueto Sorell Council because it has not pursued the structural and cultural changesimplied by the purchaser ^ provider split.

Other factors that might have influenced the superior policy performance of theHCC, as one of the respondent managers contends, are: the higher quality and avail-ability of the requisite professional staff; the strong interest and commitment of policymakers and implementers to see through the reforms; the larger revenue base of thecouncil; its larger market; and its better receptiveness to new ideas and internationalbest practice due to its urban nature. The majority of the respondents of Sorell Councilagree, arguing that they were not convinced the purchaser ^ provider split was theappropriate policy instrument to exact superior efficiency outcomes. Hence, they werenot interested in its elaborate application.

They also blamed their inability to enhance efficiency on the lack of the requisitemanpoweröparticularly engineers, architects, planners, and contract administrators.One departmental manager particularly noted that the lack of contract administra-tors, civil engineers, and quantity surveyors has made the execution of client-sidefunctions very difficult. And to him was one of the principal reasons why the councilhas not fully implemented purchaser ^ provider reform. The majority of the respon-dents on their part intimated that the scant revenue base has made it difficult for thelocal authority to fund many policy initiatives including the purchaser ^ providerarrangements. Thus, the superior policy performance of the HCC, they noted,might be attributable more to its local favourable contextual conditions than to thepurchaser ^ provider split per se. This evidence confirms H4, which postulated thatthe outcome of the application of the purchaser ^ provider split will be a function ofcontext.

Tax burden has a positive effect on service spending and a negative associationwith employment in both the HCC and Sorell Council. This may be interpreted asgreater reluctance of the HCC than Sorell Council (because the latter has a greatertax burden than the former) to use increases in rates as a means to boost revenues inorder to expand existing services or introduce new ones. It may also imply that bothcouncils desist from using rates revenue to fund the expansion of their labour forces.This viewpoint was confirmed by one of the managers of the HCC, who intimatedthat the council was keen to provide affordable services for the people and thatexplained the reason why it has not increased rates over several years. He addedthat the recent slight increases in rates were substantially lower than the rises ininflation or the consumer price index.

Population has positive effects on total service spending in both the HCC andSorell Council. This may be interpreted as a lack of contestability in the provision ofservices. This interpretation is reasonable in that the small Tasmanian market does notafford opportunity for the gains in efficiency in competitive supply to be fully realised.

Purchaser ^ provider split 973

ConclusionThe cases that have been examined in this study provide important insights into theproblems associated with using purchaser ^ provider split to bring about not only moreefficient service delivery and employment practices in areas that are subject to it, butalso jurisdiction-wide improvements. In the study I have articulated and tested fourhypotheses. H1 postulated that the purchaser ^ provider split will be viable only forlarge programme expenditures since these programmes will gain substantially fromscale economies and competitive supply which will in turn reduce unit cost. It hasalso proposed that small service activities will not benefit to the same extent, if at all,because transaction and surveillance costs will erode any marginal gains made.

One of the important themes in the literature relates to the capacity of thepurchaser ^ provider split to reduce the costs of providing services. For example, itis argued that the shift from a budget-based allocation of resources to the output-based allocation associated with the purchaser ^ provider split would produce savingsof significant amounts. However, these savings, as has been evident from the testing ofhypothesis H1, have been eroded by the budgetary politics (even though the redis-tribution of spending arising from the politics to other council services may still bebeneficial) and the increased transaction costs that have accompanied the introduc-tion of the purchaser ^ provider reform. Moreover, whereas the programme-specificeffect of the split is largely demonstrable or evident, its aggregate effect throughoutthe whole organisation particularly on total municipal spending and aggregateemployment is indeterminate or unclear.

Hypothesis H2 predicted that the incidence of the purchaser ^ provider split willnot be related to total municipal expenditure. The test result has confirmed thishypothesis [as indicated by the positive (1.738) t-value of the purchaser ^ provider splitin table 4]. It can therefore be inferred from this evidence that the purchaser ^ providersplit has not led to reductions in the HCC's total service spending. Since total munic-ipal service spending has not reduced with the incidence of the purchaser ^ providersplit, it implies the split has no impact at all on aggregate local authority spending.Respondents' views seem to support the finding because, while the majority of themagreed that the council has become far more conscious of the costs and quality ofservices it provides following the introduction of the purchaser ^ provider split, theycould neither confirm nor deny that service expenditure has decreased.

Hypothesis H3 posited that the purchaser ^ provider split will not be related tototal municipal employment. The rationale for this hypothesis is that savings frompurchaser ^ provider reform may lead to increased spending and therefore employmentelsewhere in the local authority. This hypothesis has been tested and upheld. Eventhough there was an initial reduction in the total workforce with the inception of thepurchaser ^ provider split (mostly nonessential and manual workers were laid off ),the number of employees of the HCC later increased with the engagement of otherrequisite professional staff. Departmental heads, according to the respondents, pro-vided compelling reasons why these staff had to be employed. This finding implies thatservice providers (internal or external) may have budgetary preferences that mayconflict with the council's chief executive officer's desire to discipline budgets.

The implementation of the purchaser ^ provider arrangement requires more high-skilled employees so it is not surprising that the HCC, after laying off nonessentialstaff, subsequently employed others with high professional expertise such as civilengineers, contract administrators, environmental experts, trainers in sporting activ-ities, and urban planners. The change in the calibre and size of the workforce hascertainly affected the composition of employment in the HCC. This might have favour-able implications for human capacity development and competitiveness of the council

974 A K Mohammed

into the future because only those employees who can create and innovate to add morevalue to the organisation will be maintained.

It can also be said that the split has also changed managerial and policy culturesin a self-reinforcing manner because policy makers in the HCC have become morecommitted to the reforms, and have been more innovative and receptive to new ideasand international best practice.

Hypothesis H4 proposed that the outcome of the application of the purchaser ^provider split will be a function of context. The influence of contextual factors on theoutcomes of policy interventions is a theme that remains unexamined in the litera-ture. However, their role in either facilitating or thwarting or even preventing theachievement of the predicted effects of policies is real. These factors are important inproducing symmetries and asymmetries in response outcomes. All of the respondentsargued that changes that preceded the purchaser ^ provider split such as amalgama-tion, and legislative, managerial, and microeconomic reforms achieved efficiency gainsin forms such as higher levels and quality of service delivery, stricter accountabilityregimes, and public expenditure discipline. In addition, differences in bureaucraticcapacity (including bureaucrats' interest in, and commitment to, the reforms), unequalrevenue base, and unequal market sizes facilitated the achievement of the predictedeffects of the purchaser ^ provider split in some councils like the HCC, but hinderedthe attainment of these benefits in others such as Sorell Council. The study thereforeconcluded that greater efficiency gains in some jurisdictions are attributable more toparticular local favourable contextual conditions than to the purchaser ^ provider splitper se.

I suggested in the light of the evidence from this study that, because governmentshave to achieve much broader objectives than just efficiency gains, the combinedeffect of the entire repertoire of service modes, not just the purchaser ^ provider split,should be considered. Other government objectives for providing services are equity,accountability, and citizenship. This alternative approach provides a new means ofinvestigating the relationship between policy outputs and the institutional arrange-ments that municipal governments employ to fulfill their service responsibilities.Each arrangement complements the others and may even make singular and/or uniquecontributions to the achievement of particular dimensions of organisational goals andobjectives. However, each alternative is inadequate in `ranking in' all the desirableoutcomes.

The implication of the analysis in this paper for the theory and practice of publicadministration is that the purchaser ^ provider split, like all predecessor governmentmodels, has both strengths and weaknesses, and is not a panacea for the problems ofbureaucratic supply. Myriad institutional arrangements for management and servicedelivery are on the menu; however, it should be realised that the appropriateness orotherwise of any alternative or a combination of alternatives is a function of not onlythe type of good or service to be provided, but also the local contextual conditions.

Acknowledgements. I wish to thank Professor Stephen Bailey of the Division of Public Policy,Glasgow Caledonian University, Scotland for his helpful suggestions and comments on earlierdrafts.

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