Principal investigator: Omar Barroso Khodr
Authors: Ruowen Shen; Hai David Guo; and, Salman Yousuf UI Alam
Original title: Enhancing Service Delivery Efficiency
Through Inter-Local Collaboration:
A Network Analysis in Water
Service Context
Location of the Intervention: Iowa (US state)
Sample Size: 275 cities in the state of Iowa.
Primary Variable of Interest: Efficiency through per capita operating expenditure on water and sewage services.
Type of Intervention: Impact analysis on state policies.
Methodology: Network analysis and dashboard data.
Summary
The fragmentation among local governments often generates inefficiencies in the provision of public services, a challenge especially relevant for small communities. The study by Shen, Guo, and Alam (2026) uses the Institutional Collective Action (ICA) framework and network analysis to investigate how intermunicipal collaboration agreements can improve cost efficiency in water and sewage services in Iowa. By integrating the theories of economies of scale and transaction costs, the study offers a deeper understanding of how intermunicipal collaboration networks contribute to cost reduction in the provision of these services. The results show that, although collaboration is widely seen as a way to achieve economies of scale, the network structure among local actors can play an even more decisive role in achieving real efficiency gains. In water services, cities embedded in more densely clustered networks tend to exhibit lower efficiency. In contrast, in sewage services, clustering is associated with greater efficiency, favoring the sharing of resources and oversight mechanisms; however, greater centrality in the network is related to lower efficiency. This evidence highlights the importance of strategically managing collaborative relationships in order to balance the benefits of economies of scale with the transaction costs inherent in intermunicipal cooperation. The findings offer relevant insights for policymakers interested in improving the efficiency of public services through collaborative arrangements between municipalities.
- Policy Problem
The authors seek to address a set of interconnected political issues stemming from the fragmentation of local government in the United States. The central problem is that the current institutional arrangement—comprising numerous small, independent, yet deeply interdependent jurisdictions—generates significant inefficiencies. This fragmentation results in costly duplication of services, potentially counterproductive competition between governments, and negative externalities, in which the decisions of one municipality adversely affect its neighbors. As a consequence, many local governments struggle to provide high-quality essential services such as water supply, waste management, and public safety, especially given limited and often declining resources. The fundamental political question, therefore, is how to overcome these structural inefficiencies to improve service delivery to citizens.
In this way, the study examines intermunicipal agreements (IMAs) as one of the main policy responses to this fragmented scenario. By forming collaborative networks, governments seek to pool resources, share expertise, and achieve economies of scale, reducing costs and improving the quality of services. However, the study highlights a relevant policy dilemma: the evidence on the effectiveness of these collaborations is inconsistent. While some initiatives produce substantial gains, others do not generate the expected savings and, in some cases, introduce new problems. This uncertainty places policymakers and public managers before complex decisions: is it worthwhile to invest in collaboration? And, if so, how to structure it to ensure that it represents an efficient use of public resources and efforts?
To address this uncertainty, the study identifies important gaps in how collaboration has been measured and theorized. A recurring limitation is the use of overly simplistic indicators—such as classifying governments simply as “collaborates” or “does not collaborate”—which ignore crucial dimensions of the scope and intensity of cooperation. Furthermore, the study argues that relying solely on the logic of economies of scale is insufficient. By introducing the framework of Institutional Collective Action (ICA), the authors emphasize that collaboration also generates transaction costs, such as negotiation, monitoring, and enforcement of agreements. In some cases, these costs can offset the benefits of scale.
Ultimately, the central policy question is not simply “does collaboration work?”, but “under what specific network conditions does collaboration produce net efficiency gains?”. The aim is to offer a more refined understanding of how the structure of a city’s collaborative relationships can help manage transaction costs and unlock the true potential of economies of scale in the provision of essential public services such as water and sanitation.
- Policy Implementation Context
The context of public policy implementation analyzed in this study is the provision of water and sanitation services by highly fragmented local governments in the United States. This is a high-risk public policy area, marked by intense capital demand, strong asset specificity, and high technical complexity. Aging infrastructure, increasingly stringent environmental regulations, and climate pressures amplify the stress on municipal resources. In this fragmented institutional environment—comprising numerous small and independent jurisdictions—policymakers face the challenge of ensuring the efficient provision of these essential services, despite limited fiscal capacity, duplication of efforts, and negative externalities that hinder intergovernmental coordination.
Municipal Intervention Agreements (MIAs) emerge as a voluntary collaborative tool through which municipalities jointly implement water service provision, sharing infrastructure costs and coordinating operations. However, the successful implementation of policies through these networks is not automatic. It requires balancing the pursuit of economies of scale with the need to manage the transaction costs inherent in negotiating, monitoring, and enforcing collaborative agreements that cross jurisdictional boundaries.
- Evaluation Details
Shen, Guo, and Alam investigate how the structure of intermunicipal agreement networks (IAMs) influences the efficiency of public service delivery, using water supply as the main empirical reference. The study starts from the classic problem of fragmented local governance: numerous small and independent jurisdictions operate at suboptimal scales, which hinders the achievement of economies of scale—when unit costs decrease with increased production—and generates negative externalities, since the actions of one government directly affect its neighbors. Alternatives such as privatization or municipal consolidation exist, but present significant limitations, including high transaction costs for small municipalities or loss of local autonomy. In this context, IAM networks—formal and voluntary agreements between local governments to cooperate in service delivery—emerge as a promising alternative to pool resources and mitigate externalities.
A central focus of the analysis is the ambivalent role of transaction costs in these networks. While cooperation aims to generate economies of scale, it itself creates additional costs, such as information retrieval, negotiation of terms, and monitoring of compliance across different jurisdictions. The study highlights that formal agreements, such as Intermunicipal Cooperation Agreements (ICAs), can entail even higher costs than informal arrangements. In some cases, these administrative and coordination expenses can be so high that they negate the expected financial gains, making the management of these costs a decisive element for the success of the collaboration. Thus, the objective is not only to verify whether cooperation improves efficiency, but also to identify under what network conditions this occurs.
To advance this issue, the authors formulate three hypotheses about how the structure of a city's collaborative relationships affects its efficiency in service delivery. The first (H1) proposes that a greater scope of participation in AICs increases efficiency by allowing the capture of economies of scale. The second (H2) suggests that a city's centrality in the network—acting as a highly connected "node"—improves efficiency by expanding access to information, resources, and innovations, reducing information and coordination costs. Finally, the study presents competing hypotheses about the effect of network clustering, that is, when a city's partners also collaborate intensively with each other. Hypothesis H3a argues that these cohesive clusters strengthen trust and reduce monitoring costs through repeated interactions and reputational effects. The alternative hypothesis (H3b) maintains that this same closure can generate groupthink, restrict access to new ideas, and create path dependencies, reducing the adaptability and efficiency of the service.
- Method
Shen, Guo, and Alam (2026) investigate whether AIMs increase efficiency in the provision of water and wastewater services in Iowa municipalities. The methodology combines network analysis and panel data econometrics, exploring the state's unique institutional environment, where Chapter 28E of state legislation actively encourages collaborative governance among local governments.
According to the authors, Iowa constitutes an ideal laboratory for examining AIMs due to the predominance of small communities—many with fewer than 5.000 inhabitants—that face capacity limitations in operating water systems independently. The study uses data from 2012 to 2022, focusing on municipal service provision. To systematically identify AIMs, the researchers developed custom web scraping scripts in Python to extract records from the Secretary of State's online repository, capturing agreements related to water systems (watershed management, utility projects, treatment plants) and wastewater services (sewer networks, equipment sharing, team cooperation).
The dependent variables measure efficiency through per capita operating expenditures on water and sewage services, extracted from the Cities' Annual Financial Reports and adjusted for inflation. Lower per capita expenditures indicate greater efficiency, encompassing expenses for personnel, contracted services, supplies, and infrastructure maintenance.
The independent variables operationalize collaboration in two ways: by counting ILAs (Intergovernmental Agreements) per city, reflecting the breadth of collaboration; and by structural positions in the network, measured by degree centrality (direct connections with other cities) and the clustering coefficient (density of connections between a city's partners). These metrics capture whether efficiency gains depend not only on the number of partners, but also on how these partners connect with each other.
Control variables include factors that can influence efficiency: per capita revenue from water services, demographic characteristics (median income, population density, racial composition), partner diversity (involvement with special districts or the private sector), water quality violations, and infrastructure attributes (well age and density of private wells).
The study employs panel-corrected standard errors (PCSE) with panel-specific first-order autocorrelation, a technique suitable for diagnoses indicating heteroscedasticity, autocorrelation, and cross-sectional dependence—common problems in panel data that PCSE effectively addresses. Asymmetric control variables were logarithmically transformed, and the absence of multicollinearity was verified using the variance inflation factor.
This robust methodological approach allows for a rigorous examination of how collaborative network structures influence the efficiency of public services, offering relevant empirical evidence for the debate on intermunicipal cooperation as a strategy to overcome capacity limitations in smaller communities.
- Main results
Based on an empirical analysis of intermunicipal partnership agreements (ILAs) in water and sanitation services, this study presents subtle and, in some cases, contrasting conclusions about how different collaboration structures affect the efficiency of service delivery. Contrary to conventional expectations and the first hypothesis (H1), the results consistently show that simply participating in a greater number of agreements—that is, expanding the scope of collaboration—does not increase efficiency in water or sanitation services. This evidence challenges the assumption that more collaboration automatically equates to cost savings or better performance, indicating that the benefits of economies of scale do not emerge solely from increasing the volume of partnerships.
The most notable finding concerns the role of network clustering, that is, when a city's partners also collaborate intensively with each other. Here, the effects diverge markedly between the two services analyzed. In water service provision, greater clustering is associated with lower efficiency, corroborating hypothesis H3b. This suggests that excessively cohesive clusters can generate informational redundancy, reinforce path dependencies, and limit innovation and adaptability, harming efficiency. In contrast, in wastewater services, greater clustering is related to greater efficiency, aligning with hypothesis H3a. In this case, cohesion among partners seems to facilitate coordination, resource sharing, and mutual trust, reducing monitoring costs and promoting better operational results.
Regarding network centrality—a city's position as a highly connected node—results also vary across services. There is no significant association between centrality and efficiency in water provision. However, in wastewater services, the relationship is negative: more central cities tend to exhibit lower efficiency. This counterintuitive evidence suggests that highly connected locations can impose substantial coordination costs, since managing multiple heterogeneous relationships requires greater administrative capacity and can hinder decision-making.
Taken together, the results reinforce that network structure is crucial for efficiency, but its effects are specific to the type of service and cannot be generalized across different areas of public policy. The study demonstrates that achieving efficiency through intermunicipal collaboration requires more than simply adhering to agreements: it demands a strategic navigation of positions within the network, balancing the benefits of cohesion with the risks of isolation and carefully managing the transaction costs associated with different structural arrangements.
- Lessons in Public Policy
This study offers important public policy lessons for local authorities, state policymakers, and public managers interested in improving service delivery through intermunicipal collaboration. First, the results warn against a “the more collaboration, the better” approach. Expanding the number of agreements does not, in itself, generate efficiency gains. Thus, policymakers should avoid treating the scope of collaboration as an indicator of success and focus on the quality and structure of collaborative relationships.
Secondly, the contrasting effects observed between water and sewage services show that collaborative strategies need to be adapted to the specific characteristics of each public policy. What works for sewage may be counterproductive for water, indicating that generic policies that promote uniform collaboration across all municipal functions tend to fail.
Third, the study demonstrates that networking is an ambivalent tool. In some contexts, cohesive groups reduce transaction costs by strengthening trust and facilitating repeated interactions. In others, however, they can generate isolation, informational redundancy, and resistance to innovation. This suggests that public managers should cultivate network structures that combine internal cohesion with openness to new partners and ideas.
Fourth, the finding that highly central cities in sewer networks exhibit lower efficiency reveals that central locations entail coordination costs that are often underestimated. Managing multiple heterogeneous relationships requires significant administrative capacity; pursuing centrality without this capacity can harm performance rather than improve it.
Ultimately, the main policy lesson is that effective collaborative governance requires strategic management of networks: it is not enough to decide whether cities should collaborate, but how they should position themselves within the collaborative ecosystem to balance the potential of economies of scale with the inevitable transaction costs in different structural arrangements.
