Putting all one's eggs in one basket: Relational contracts and the management of local public services

French municipalities often contract out the provision of local public services to private companies, and regularly choose the same private operator for a range of different services. We develop a model of relational contracts that shows how this strategy may lead to better performance at lower cost for public authorities. We test the implication of our model using an original database of the contractual choices made by 5000 French local public authorities in the years 2001, 2004 and 2008.

► We examine the contracting-out of two local public services to a same operator (the bundling strategy).
► Using relational contracts, we show that bundling may lead to a better quality at lower costs.
► We explore a database of contracts signed by French local public authorities in 2001, 2004 and 2008.
► Water prices are lower when the same operator provides water and sanitation water services, ceteris paribus.