Current Urban Studies
2013. Vol.1, No.3, 48-58
Published Online September 2013 in SciRes (
Copyright © 2013 SciRes.
Alternative Service Delivery Arrangements in Local
Municipalities in Israel: A Case Study
Eti Sarig
The Political Science Department, The Open University, Raanana, Israel
Received June 13th, 2013; revised July 14th, 2013; accepted July 29th, 2013
Copyright © 2013 Eti Sarig. This is an open access article distributed under the Creative Commons Attribution
License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original
work is properly cited.
The adoption of alternative service delivery arrangements (ASDAs) is not a new phenomenon in Israeli
local government. The current study is based on empirical quantitative research which examined the effect
of economic and political factors on the scope of privatization and alternative service delivery arrange-
ments (ASDAs) in local municipalities in Israel. The “economic constraint” model and the “political
choice” model served as the theoretical framework for examining considerations underlying service pri-
vatization. The contribution of the current study to previous literature on ASDAs is in examining the ef-
fect of moderator variables on the scope of privatization (SOP). A study of 29 services in 106 local mu-
nicipalities in Israel indicated that political factors have a dominant effect on the scope of privatization in
local municipalities while the effect of economic factors is small and statistically insignificant. The fol-
lowing variables were found to have a statistically significant effect on the scope of privatization: number
of employees, age of local municipality, employee costs and characteristics of the head of the local mu-
Keywords: Alternative Service Delivery Arrangements; Service Delivery Arrangements; Municipal
Service Delivery; Privatization; Out Sourcing; Contracting Out
The emergence of “New Public Management” (NPM) and its
faith in markets led to a search for alternative methods in the
delivery of public services (Ohemeng & Grant, 2008). ASDAs
for social services currently characterize all welfare states, in-
cluding Israel, and aim to minimize friction between govern-
ment and the public by decreasing government activities. There
is a growing tendency to accentuate the role of central govern-
ment as a governing body rather than as a supplier of products
and services. Concomitant with reduced government funds, this
outlook has compelled local municipalities to seek ASDAs in
the hope of enhancing utilization of the limited resources at
their disposal by reducing costs, lowering the debt burden and
increasing tax revenues. Indeed, the adoption of ASDAs by
local municipalities increases in times of financial crisis and
economic decline. In this study, ASDAs refer to privatization
and the contracting out of local municipality services, or part-
nership with another public or private provider, or providing
inducement for private or nonprofit production as alternatives
to municipal provision and production—that is, every mode of
service delivery that is not supplied by municipality employees
Many studies deal with the economic considerations that
compel local municipalities to adopt ASDAs (Morgan, Meyer,
& England, 1981; Poole, 1987; Savas, 1987; Stein, 1990; Wong,
1988; Melcher, 1994; Ben-Elia, 1996; Henig & Holyoke, 2003
and others). However, these studies, as well as the current re-
search, show that political considerations play a more dominant
role in these decisions David, 1987; Del Bello, 1987; Higgins,
1989; Higgins & Ian, 2002; Judd, 1988; Miranda, 1994; Sonen-
blum, Kirlin, & Ries, 1977; Stein, 1990; Thompson, 1992; Wong,
1988; Warner & Hebdon, 2001; Battaglio & Legge, 2008; Shaw,
2003; Bel & Fageda, 2008). Consequently, scholars in public
administration have generally viewed the political context of
governments as supplemental to economic factors (e.g., Morgan,
Hirlinger, & England, 1988). In spite of the claim that both po-
litical and fiscal constraints less clearly explain the considera-
tion of privatization choices of local municipalities (Bel & Fa-
geda; 2009), political factors still matter when it comes to ex-
plaining patterns in local municipalities’ adoption of ASDAs
(Fernandez, Ryu, & Brudney; 2008). The current research seeks
to identify which factors (economic and political) lead to the
adoption of ASDAs in Israeli municipalities and assisting them
in offering a more efficient service in provision of social wel-
fare services (education, welfare etc.).
Understanding these factors becomes more vital as the mu-
nicipality’s fiscal distress becomes greater and the municipality
has to develop new creative thinking in service delivery. The
importance of this research is growing because, to the best of
my knowledge, this is the first study that examines the influ-
ence of moderator variables between the independent variables
(economic and political) and the dependent variable (scope of
privatization—SOP). Its significance is also due to the large
number of independent variables examined in this research. The
lack of research on this topic in Israel is the reason for using
hypotheses from prior research in developed countries such as
the USA as indicators of the extent to which ASDAs are adop-
ted by local municipalities in Israel. Furthermore, in spite of the
differences in governing patterns and public administration
systems, local municipalities in Israel show similar economic
management patterns and use management methods similar to
those used in other developing and decentralized countries. In
some cases this causes complicated and problematic function-
ing, because of incompatibility with government policy.
Israel Local Municipalities—Background
Israel is a unitary state, with only two levels of government:
central and local. Its local government system is composed of
three basic types of local municipality: 1) cities (municipalities
that usually include more than 20,000 inhabitants); 2) local
councils (smaller urban settlements); 3) regional councils (fed-
erations of villages, each having its own local village commit-
tee). The creation, boundary change and functioning of cities
are subject to rules determined in the 1934 Municipal Ordi-
nance1. The legal foundations of the Israeli local municipalities
in the early 2000s are still British colonial. Israel in the early
2000s is indeed to a degree centralized in the allocation of tasks
(Razin, 2010: p. 64), for example, land use planning activities
are largely subordinate to district and national committees con-
trolled by the central state.
Unlike the USA and European countries, governance in Is-
rael is characterized by considerable centralization and power
in the hands of bureaucratic systems and by traditional man-
agement and governance systems that no longer suit the needs
of the state, to the point that they constitute a barrier to the de-
velopment of local municipalities (Nachmias et al., 1997: p. 7).
Other researchers delineate the ramifications of over-centrali-
zation which characterizes the relationship between central go-
vernment and local municipalities in Israel, a situation resulting
in behavior by local municipalities that hinders their managerial
effectiveness (e.g., Ben-Elia, 2004; Deri, 1999; Katz & Mevo-
rach, 1990; Razin, 2003). The involvement of central govern-
ment plays a powerful role and affects local municipalities by
means of government transfer of funds to the “extraordinary”
budget of the local municipalities, and through government and
municipal-governmental corporations (Hasson & Hazan, 1997).
The handling of matters such as building permits, development,
city property taxes, fund transfers for project development, phy-
sical planning, ordinance plans, budgets and detailed monitor-
ing of budget management, etc., all genuinely reflect the fact
that local municipalities in Israel function as agents of the cen-
tral government (Ben Elia, 2004, Blank, 2004). This state of af-
fairs reduces the ability of local municipalities to take local is-
sues into consideration, to formulate a local tax policy and to
adopt an economic orientation that focuses on local needs and
priorities. Moreover, there is an ambiguity in governmental
laws. Formally, all authority is in central government but be-
cause of weak regulation, the local municipalities have a lot of
autonomy, which they enforce. Since the 1970s, they have been
more influenced by neoliberal approaches, that have led to a
somewhat Thatcherist centralized form of neoliberalism in
which privatization tends to bypass local municipalities rather
than empowering them through the delegation of tasks and
oversight responsibilities (Razin, 2010). The slowdown of the
Israeli economy, in the 1970s and 1980s, encouraged municipal
entrepreneurialism. The move from council-elected mayors to-
wards directly elected ones in 1978 gave a further boost to local
initiative. Economic stagnation and the fragmentation of politi-
cal power, characterized by pressure groups which were grow-
ing in strength, and conflicting interests within the government,
has been associated with the growing power of local munici-
palities, becoming engaged in a broader set of responsibilities
that were no longer efficiently performed by the central state.
The reliance by local municipalities on self-generated revenues,
particularly on the profitable non-residential property tax, grew
immensely in the mid-1980s, although the central state’s gen-
eral grant and earmarked transfers remained at close to 40 per-
cent of local government revenues. However, decentralization
has gradually given place, since the 1990s, to the recentraliza-
tion of power in the hands of central government bureaucracies:
the Ministry of Finance and legal establishment. The neoliberal
discourse emphasizing privatization, public-private partnerships,
competition, reduced public expenditure and a diminishing role
for government in the economy, has not necessarily been in line
with principles of decentralization and enhanced democratic in-
stitutions. Instead, steps to reform local municipalities included
more top-down controls on the functioning of local municipali-
ties, associated with the concentration of power in the hands of
central state bureaucratic “gatekeepers”, such as those at local
authority level. Competition among local municipalities in Is-
rael dictates the adoption of a strategy to gain a foothold in po-
wer loci vital for a municipality’s existence, to protect itself
against other municipalities seeking to seize control of its assets,
thus preventing resources (businesses and residents) from mov-
ing to more attractive municipalities.
Models Explaining the Adoption of ASDAs
There are two main approaches in the literature dealing with
the factors leading to the adoption of ASDAs. The first em-
braces the “economic constraint” model that views economic
constraints as the key factor in local government policy deci-
sions; the second espouses the “political choice” model that
views political pressure as the primary factor in those decisions
(Miranda, 1994; Wong, 1988; Bel & Fageda, 2008). Studies exa-
mining local public policy suggests that decisions are made
within a general and broad framework of structural constraints
accompanied by economic constraints and political pressure
and there is a tension and competition between them which
affect policy-making at local government level (Higgins, 1989;
Miranda, 1994; Pouder, 1996; Stein, 1990; Stevens, 1978; Wong,
1988 and others). This creates a wide range of alternative poli-
cies within the local government arena that can strengthen or
weaken local policy. In certain cases local government policy is
more the product of economic and technological constraints
than political pressure (Stone, 1989), whereas in other instances
political forces rather than economic forces take precedence in
the process of adopting and implementing policy. Other resear-
chers (Asher, 1983; Coyle, 1994; Horkin, Katz, & Mevorach,
1998; Kinder, 1981; Kramer, 1983) have focused on voter be-
havior and political preferences. Stone (1989) concludes that
municipal officials collaborate with those who can provide
them with resources that they can utilize to achieve results con-
gruent with the municipal policy they seek to promote. Addi-
tional studies view competition for capital as a factor that in-
fluences local government policy (Korosec, 1997; Boyne, 1998;
Bel & Fageda, 2007) and Bel & Fageda (2009) add ideology as
1Ordinances and laws passed by the British colonial government (1918-
Copyright © 2013 SciRes. 49
playing a major role for large cities. The above overview dem-
onstrates that limitations on local government public policy can
be political, economic, administrative, ideological, legal, statu-
tory, or may derive from status gained through the control of re-
sources (Torgovnik, 1994). Just as economic entities cannot
disregard the politics involved in shaping policy, political pres-
sure cannot ignore the existence of economic constraints. Even
in cases in which public support for economic development is
strong, political players and public entities must be taken into
The “Economic Constraint” (EC) Model and
According to the “economic constraint” (EC) model, econo-
mic considerations are primary to political. The foundations of
the EC model can be found in Tiebout’s (1956) “ideal world of
fiscal equilibrium”, as well as in Bish (1971), Wong (1988) and
at length in Peterson’s (1981) “City Limits”. Fiscal stress of lo-
cal municipalities and the desire to cut costs are the primary
motivators behind the adoption of ASDAs (Wong, 1988; Kor-
osec, 1997; Bel & Fageda, 2007, 2009). The most important eco-
nomic constraints shaping local government policy are com-
petition from other local municipalities in the production and
distribution of municipal services, and the competition between
cities for residents and for companies in a market of public
goods (Wong, 1988). Greater competitiveness improves the tax-
payer’s cost-benefit ratio, which in turn increases the attractive-
ness of a local municipality for residential and business purpos-
es. Although there is international literature today which shows
limited to no cost savings from privatization (Bel & Fageda,
2009, 2007), fiscal constraints are used as an influencing factor
(Feiock 2001) because local government, like any rational play-
er, needs to ensure economic growth, and must promote pro-
grams that stem from considerations of economic benefit and
avoid actions that may risk their fiscal welfare.
1. The greater the fiscal distress, the more likely the
adoption of ASDAs. Municipalities are more likely to adopt
ASDAs when they face severe fiscal distress, increased demand
for services and heightened taxpayer opposition to tax increases.
Melcher, 1994; Miranda (1994), Miller, 1987; Morgan et al.,
1981; Poole, 1987; Korosec, 1997; Knox, 1988; Feiock, 2001;
Bel & Fageda, 2007, 2009 and others).
2. The greater the tax rate, the more likely the adoption
of ASDAs. Income from tax as a proportion of total municipali-
ty income reflects the municipality’s difficulties in raising in-
come from taxes in its area. The municipality cannot raise local
tax as it would like to do because this might encourage negative
emigration of inhabitants and businesses. Therefore, when the
income rate from taxes reaches its upper limit, this spurs the
municipality to look for ways to cut its expenses. The assump-
tion is, therefore, that the heavier the tax burden, the more in-
clined the municipality will be to adopt ASDAs (i.e. the greater
the SOP). (Miranda, 1994; DelBello, 1987; Stein, 1990; Blake,
1988; Flinn, 1970; Knox, 1988; Higgins, 1989; Blackstone &
Hakim, 1997; Dye & Garia, 1978, Coyle, 1994; Miller, 1987;
Morgan, Hirlinger, & England, 1988; Greene, 1999).
3. The greater the cost of public sector employees relative
to those in the private sector, the more likely the adoption
of ASDAs. Lower wages and benefits, low price bids to win
contracts, hiring either temporary or part-time employees, re-
duced job security, utilizing human resources more efficiently
(smaller staff)—all these factors reduce employee costs, which
are a vital component of direct costs, and they are strong pre-
dictors of a local government management decision in favor of
ASDAs (Miranda, 1994; Feiock, 2001; Reca & Zieg, 1995;
Knox, 1988; Stevens, 1978; Greene, 1999; Miller, 1987; Ferris,
1986; Morgan et al., 1988; Stein, 1990; Pouder, 1996).
4. The greater the degree of competition from other mu-
nicipalit ies, the greater the likelihood of adoption of ASDAs.
Competition between public and private service units can create
efficiency. Samuel (1990) claims that the “organizational envi-
ronment” within which the organization operates dictates the
adoption of strategy intended to enhance the local municipal-
ity’s relative power, to gain a foothold in power loci vital for its
existence, and to protect itself against other municipalities seek-
ing to seize control of its assets, thus preventing resources (bu-
sinesses and residents) from moving to more attractive munici-
palities. In this case the likelihood of adopting ASDAs will in-
5. The larger the availability of service providers (“ven-
dors”) within a geographic area, the greater the likelihood
of the adoption of ASDAs. Large municipalities located in me-
tropolitan areas enjoy the best of all worlds: (a) they have avai-
lability of alternative suppliers which serves as an incentive for
the selected service provider to cut costs; (b) they can obtain
lower bids in a competitive market; (c) they are able to replace
contractors that do not fulfill requirements; (d) they can prevent
suppliers from acting opportunistically, increasing transaction
costs and inefficiencies. The larger the number of contractors
willing to enter into a partnership with the municipality, the
smaller the chances of monopolization (Reca & Zieg, 1995;
Knox, 1988; Blackstone & Hakim, 1997; Miranda & Lerner,
1995; Stein, 1990; Ferris, 1986; Foster, 1990; Bel & Fageda,
6. The more positive the local municipality’s previous
privatization experience, the greater the adoption of ASDAs.
Local municipalities gain an overall assessment of privatization
with each application. With this in mind, positive past privati-
zation experience (success) will encourage the adoption of si-
milar measures in order to achieve similar results. Therefore,
the adoption of ASDAs will be greater than in a local municipa-
lity with a negative experience. A community’s historical char-
acteristics may also prevent it from transferring functional re-
sponsibility areas to other entities for fear that such action might
harm the municipality. To sum up, previous delivery mode is a
strong predictor of the current service delivery arrangement (Ko-
rosec, 1997; Osborn & Gaebler, 1992; Ferris & Graddy, 1986;
Stein, 1990; Lamothe et al., 2008).
The “Political Choice” (PC) Model and Hypotheses
The “political choice” (PC) model focuses on non-economic
factors such as political institutions and processes and on po-
litical tradition (Wong, 1988). Kirlin, Ries, & Sonenblum (1977)
claim that a preference for local control of services reduces in-
terest in adopting ASDAs that primarily involve external con-
tractors, because local elected and appointed officials seek to
maintain control over municipal service delivery. Political con-
straints such as coalition power relations and the desire to be
reelected are primary characteristics of a political environment
in which decisions are made at a local level (Peterson, 1981).
Political pressure often succeeds in swaying decisions in such a
way that they are ultimately based on non-economic motives
Copyright © 2013 SciRes.
—decisions that under more “favorable” political conditions
would not be made. It must therefore be acknowledged that the
decision to adopt ASDAs cannot ignore local politics, even if
the decision is economically advantageous to the local munici-
1. The “older” the local municipality, the lower the adop-
tion of ASDAs. In long-established municipalities the func-
tional responsibility is bigger than in young municipalities. Po-
litical pressure on the municipality’s leaders to continue provi-
ding the services which have been their responsibility so far ex-
plains, from a political perspective, why the age of the munici-
pality influences the service provision. Still, the “older” the or-
ganization the greater its tendency to develop “bureaucratic”
structural and functional characteristics. Therefore, we expected
to get a negative correlation between the age of the municipali-
ty and ASDAs (Stein, 1990; Peterson, 1981; Dye & Garcia,
1978; Miranda, 1994).
2. The greater the power of municipality employees (ME),
the less likely the adoption of ASDAs. The ME are “vocal cri-
tics” of contracting out and other ASDAs, since they are those
who stand to lose from the final outcome. They stand to incur
the greatest damage when a decision is passed concerning the
scope or content of local municipality activities. ME are among
the most organized interest groups in local politics, and they
impose “coercive isomorphism” in terms of pressure exerted by
labor unions on local municipalities concerning ASDAs. A lar-
ger percentage of organized employees in a municipality breeds
strong pressure on the municipality to provide municipal ser-
vices on its own. Service provision through an external con-
tractor is negatively related to the power of public service em-
ployee unions and to the size of the public service workforce
(Coyle, 1994; Miranda, 1994; Pouder, 1996; Morgan et al.,
1988; McIntosh & Broderick, 1996; Stein, 1990; Korosec, 1997;
Banfield, 1980; Bel & Fageda, 2007; Foster, 1990; Reca &
Zieg, 1995; Femandez, Ryu, & Brudney, 2008; Kelleher &
Yackee, 2009; Warner & Hebdon, 2001; Soleil et al., 2007; Bel
& Fageda, 2007, 2009).
3. The greater the constituency demands for public jobs,
the less likely the adoption of ASDAs. Local municipalities
under pressure to fill vacant public service positions and/or
contending with unemployment problems in the municipality
will adopt fewer ASDAs because incumbents mayors will strive
to maximize the employment opportunities at their disposal,
particularly in cities with a large concentration of minorities or
poor, two major groups that fall victim to job cutbacks resulting
from privatization (Higgins, 1989) (Coyle, 1994; Miranda, 1994;
Dye & Garcia, 1978),
Three of the research variables: age of municipality (AOM),
unemployment rate (UR), and number of employees (NOE) do
not necessarily represent traditional political variables. But ac-
cording to other research (Miranda, 1994), and given the envi-
ronmental and structural conditions within which the local mu-
nicipalities in Israel work, these variables are defined as politi-
a) UR and AOM appear in the literature as political variables
for an examination of the test for change. Higgins (1989), Stein
(1990), Coyle (1994), Miranda (1994) and others refer to UR,
and Peterson (1981), Stein (1990), Dye & Garcia (1978) refer
to AOM. The rationale behind these variables is that a high UR
is considered a political consideration that weakens the motiva-
tion to privatize and vice versa. Regarding the AOM, the older
it is, the wider its functional responsibility. This means that the
municipality is obliged to provide a wide range of services and
this weakens the motivation to privatize and vice versa. These
arguments also apply in the Israeli case.
b) NOE: One of the traditional political variables in the lit-
erature is the percentage of municipal employees who are mem-
bers of a trade union. In the USA, there is diversity in this vari-
able (there are municipalities with a high rate of union employ-
ees and others with the opposite). In Israel this variable is con-
stant. All municipal employees are union members. We thus us-
ed number of employees (NOE), a “less good” variable, as a
substitute. The rationale behind using this variable, in full aware-
ness of its comparative weakness, is that the NOE reflects their
influence on the municipality’s policy-making process.
4. The longer the term of incumbents, the lower the like-
lihood of adopting ASDAs. Incumbents who have served for
long periods of time (several terms) are confident in their man-
agement and do not feel a need to change their policies or ma-
nagement strategies. The fact that they were elected again and
succeeded in holding on to their position serves as proof—in
their eyes—that their management is successful and that the vo-
ters agree with their policies (Coyle, 1994; Miranda, 1994). This
reduces electoral pressure on them to adopt ASDAs.
5. Incumbent mayor who is politically weak, has seniority
in the position and holds a negative view of privatization
will adopt fewer ASDAs. The political power of the incum-
bents is important in contending with demands from pressure
groups such as municipal employees and politically active citi-
zens. From a social and political perspective, elected incum-
bents often have difficulty implementing ASDAs, despite evi-
dence of cost savings as a result of private production of public
services. If they believe that privatization may endanger their
re-election chances, they will not be quick to “jump on the pri-
vatization bandwagon” (Thompson, 1992: p. 45). Incumbents
seek to implement policies that “produce votes” and increase
their chances of re-election especially incumbents who serve
for long periods of time (Titheridge, 1998). For this reason,
they will adopt fewer ASDAs (Coyle, 1994; Ferris & Graddy,
1986; Ferris, 1986; Haque, 1996; Wong, 1988; Morgan, Meyer,
& England, 1981; Dye & Garcia, 1978; Stein, 1990; Henig &
Holyoke, 2003).
The Current Study—The Case of
Israel—Empirical Analysis
The analysis in this section provides an empirical test of the
economic constraint (EC) and the political choice (PC) frame-
work as applied to the adoption of ASDAs. Both quantitative
and qualitative data were collected. Qualitative data were gath-
ered through a questionnaire sent to incumbents and used for
the following variables: prior privatization experience, employ-
ee power, demand for public service jobs, characteristics of in-
cumbents, as well as for the dependent variable, scope of pri-
vatization (SOP). Quantitative and qualitative data were gath-
ered for the following variables: employee power and demand
for public service jobs. Quantitative data, obtained from various
online sources, were used for all other variables. It is also im-
portant to note that there are factors such as size of municipality
and type of service that were examined in a previous MA study
and in Ben-Elia’s (1990) research (the only two studies so far in
Israel) that affect the adoption of ASDAs, but these were not
examined in this research because of the desire to explore only
factors not previously examined in Israel.
Copyright © 2013 SciRes. 51
Research Model and Operational Measures
The research variables (economic and political) will be fol-
lowed by a discussion of the variable development and organi-
zation process, and description of the nominal and operational
definitions of the variables and the methods used to measure
them. To contend with the difficulty arising in the social scienc-
es of demonstrating a direct relationship between the indepen-
dent variables and the dependent variable, it was decided to add
moderator variables in order to obtain a realistic picture of the
situation in the local municipalities studied. To the best of our
knowledge, this is to date the only study that uses moderator
variables. It was also decided to add a control variable, popula-
tion characteristics, in order to examine a possible affinity be-
tween local municipality population characteristics (social clus-
ter) and local municipality scope of privatization. The aim of
these adjustments was to reflect, insofar as possible, the charac-
teristics of the study and the research population customary in
such studies.
The variable “fiscal distress” was calculated by weighting the
current budget over a three-year period in order to overcome
possible distortions in the municipality budget caused by the
proximity of an election year. Data were validated by examin-
ing differences in averages and standard deviations for three
years of data for all other variables, showing the differences to
be marginal and negligible.
The operational measures of the study variables were as fol-
lows: The dependent variable—local municipality scope of
privatization (SOP). This variable reflects the total provision
of services in the local municipalities. This is interval measured
and included 29 of the most common services provided by local
municipalities in Israel. These services were obtained from a
list of services published by the Center for Local Government
as well as from a typology of services adopted from Ben-Elia
(1990). The service areas included: general management, finan-
cial management, sanitation, maintenance, water, development
of infrastructures and operation of installations. To relate to
every one of the 29 items in these areas, respondents were ask-
ed to answer a questionnaire indicating the arrangement for ser-
vice delivery in their municipality—whether by full privatiza-
tion (services provided by external providers only private or
voluntary—coded 3), traditional (all services provided entirely
by the municipal workers—coded 1) or mixed privatization
(services provided by municipal workers and external provid-
ers inter municipal cooperation and mixed public and private or
voluntary—coded 2). The overall SOP in each municipality
was calculated as an index of 29 items of equal weight. The
range of the S.O.P. is between 1.3 and 2.7 with a mean of 2.0
and S.D. of 0.26. The higher the mean, the more the municipal-
ity tends to full privatization.
Independent variables (economic): Fiscal stress (FS) ex-
presses the fiscal stress of the local municipality at a given time
and it reflects the overall scope of the municipality’s financial
debts. The variable was calculated as the sum of three elements
in the municipality budget: 1) current budget surplus/deficit as
a percentage of the actual expenses of the municipality in the
same year; 2) accumulated deficit as a percentage of the actual
expenses of the municipality in the same year; 3) the burden of
loans as a percentage of the actual expenses of the municipality
in the same year. Note, a weighting of three years of fiscal
stress was carried out to overcome the possible distortion in
municipal budgets of an election, which begins a year before an
election year (Rozevich, 1984, 1987). The level of FS of local
municipalities ranges between 4% and 65.8%, with a mean of
11.8% and a SD of 10%. Examination of three-year differences
between means and a standard deviation in other variables in-
dicates marginal and negligible differences. This test is accept-
able in the literature, e.g. the research of Osborn et al. (1981).
Tax rate in the local municipality is defined operationally as
the municipal property tax (arnona) as a percentage of all ac-
tual revenues from residential, industrial and commercial muni-
cipal property taxes collected by the local municipality Mean =
95.95, SD = 10.49. The data were collected from the annual
fiscal report of the municipalities and not through a question-
naire. In Israel the arnona is 95% on average of the total mu-
nicipal budget, therefore, this variable is a good reflection of
the tax incomes of the municipality. Employee costs (EC) is
defined nominally as salary and wage expenses in the local mu-
nicipality, calculated as a percentage. The operational definition
is the percentage of expenses on salary and wages in the muni-
cipal budget in a year. Mean = 34.55 SD = 7.37 Competitive
environment (CE) The variable was calculated as follows: we
counted the number of local municipalities located in the same
statistical region as the examined municipality (competing mu-
nicipalities, CM; examined municipality, EM). The CM are di-
vided into three groups according to their size (number of in-
habitants) compared to the EM. The rating of the CM in the
EM’s region is calculated as the weighted sum of all CMs in
the region: 1) the total of large CMs was weighted with the
highest coefficient; 2) the total of CMs of the same size was
weighted with a medium coefficient; 3) the total of small CMs
was weighted with a coefficient of one (for further data please
ask the author). The weighted coefficients thus reflected the
level of their competition with the EM. For example, big CMs
are greater competition for the EM than same size CMs. The
data were collected from the Central Bureau of Statistics. The
range of CMs is between 0 - 2216 with a mean of 770.6 and SD
649.6. Service provider (SP) availability indicates the number
of SP in the municipality. The variable was constructed as fol-
lows: for each municipality we counted the number of SPs in its
region in the five most popular service fields in Israeli munici-
palities. The resulting number was weighted with the popula-
tion size of the municipality. The data were collected from the
up-to-date Yellow Pages of each municipality and not from the
questionnaire. The variable was weighted to take into account
population size in the municipality and to allow for a compari-
son between localities. Mean = 1.77, SD = 2.29. Prior privati-
zation experience (PPE) is defined as past experience in the
privatization of local municipality services. The variable was
used as a moderator variable and is comprised of quantitative
and qualitative data. The quantitative data were collected from
the Registrar of Companies, and they include the number of
municipal companies and their age in every municipality. The
qualitative data were collected through the questionnaire and
they refer to three items: 1) PPE 0 = no, 1 = yes; 2) does the
municipality learn from, and is it influenced by, the experience
of similar municipalities? 0 = no, 1 = yes; 3) does the success of
other similar municipalities in privatization of services encour-
age your municipality to try privatization too? 0 = no, 1 = yes.
(Alpha Cronbach 0.64). The final variable of PPE was con-
structed in several stages: 1) subjective experience was calcu-
lated as the sum of the three items and the resulting variable
was again encoded by its median to a dichotomous variable, 0 =
no experience, 1 = experience; 2) the objective variable was
Copyright © 2013 SciRes.
calculated as sum of seniority (veteran) in years of the munici-
pal company and this variable was coded again into a new di-
chotomous variable according to its median, 0 = no experience,
1 = experience; 3) finally, the sum of the two dichotomous
variables (objective and subjective) was used to create the PPE
variable. Mean = 0.48, SD = 0.50.
Independent variables (political): municipality age (MA):
is defined nominally as the age of the local municipality ac-
cording to the founding date of the municipality. This variable
is a political variable because of the city’s functional responsi-
bility (Stein, 1990; Peterson, 1981; Dye & Garcia, 1978; Mi-
randa, 1994). In a veteran municipality, the functional respon-
sibility is greater than in the younger ones, and they have diffi-
culties with their current delivery of expensive services. Stein
(1990) show that contracting out delivery services is more
widespread in metropolitan industrialized veteran areas because
of the political stress on the incumbent to continue providing
the same services for which they were previously responsible.
This variable is a continuous measure that divides all munici-
palities included in the sample into two categories based on me-
dian age: young municipalities (under the median = 52) and ve-
teran municipalities (above the median), age bracket 4 - 134
years, Mean = 58, SD = 31.6. Employee powe r (EP) is defined
as the ability of employees to influence local municipality deci-
sions. The variable was based on subjective data which were
collected through the questionnaire and was combined from
two items: 1) do the municipality employees in your municipal-
ity have an influence on privatization decisions? 0 = no, 1 = yes
2) are the municipality employees a group that has an influence
on the decision-making process of the municipality? 0 = no, 1 =
yes (Alpha Cronbach between the two items is 0.5). The vari-
able EP is the index of these two items. Mean = 1.46, SD = 0.70.
Number of employees (NOE) This variable expresses the po-
wer of the political pressure against privatization on the incum-
bent. Therefore the greater the NOE, the greater the pressure on
the municipal leader not to use ASDAs. All local municipality
employees in Israel are members of a labor union, therefore,
their combined power has a strong influence on the incumbent
mayor. The variable NOE is calculated as the number of mu-
nicipality employees per capita (adjusting for pensioners). It
was not feasible to combine the variables EP and NOE into one
variable. The NOE is a political variable because it expresses
political power over municipal decisions (see more explanation
in p 0.12) NOE in the municipality was measured in time t =
2000 and the SOP in time t = 2002. Similar theoretical ap-
proaches have been used in Bel & Fageda (2007). Mean =
454.6, SD = 849.7. It is customary in multiservice studies to use
as an indicator the percentage of services contracted out. The
method of measurement presented above is still a reflection
relatively of the SOP in every local municipality. Demand for
public service jobs (DPJ) is defined nominally as the demand
for public service jobs in the municipality. The variable is
measured using subjective data that serve as a measure of ef-
forts invested by the incumbent to solve unemployment prob-
lems in the municipality. This variable is combined from two
items that appeared in a questionnaire: 1) how much effort did
the incumbent make to find a solution to the unemployment
problem in his municipality? 2) what is the level of DPJ in the
municipality? The two items were measured in an ordinal scale
of five categories. Alpha Cronbach = 0.41. Mean = 0.054, SD =
0.21. Unemployment rate (UR) is defined nominally as the
UR in the municipality. This variable is a political variable
because of the necessity for reduction in manpower which ac-
companies the adoption of ASDAs, particularly when contract-
ing out. A high UR will therefore increase the pressure and the
demands on incumbent to cope with the unemployment prob-
lem. Sensitivity to public demand is connected to the need to
win elections through votes. The operational definition of this
variable is the ratio between the municipal UR and population
size. This variable is the objective data of UR in the municipal-
ity. Mean = 1.05, SD = 0.777. Incumbent’s power and priva-
tization tendency (IPPT) is a moderator variable and defined
as the power of the incumbent mayor to implement his privati-
zation policy. The assumption is that if the incumbent is char-
acterized as strong, he is able to overcome obstacles such as
employee power and implement his privatization policy, where-
as if he is characterized as weak he will find it difficult to
overcome the employees’ objections to privatization, which will
affect SOP. The variable is composed of three variables: 1) po-
litical power; 2) government continuity; 3) incumbent’s privati-
zation tendency. Political power is made up of two objective
measures: relative number of mandates received by the incum-
bent party and the percentage of votes for the incumbent in the
election. The value of the two measures of power was combin-
ed and they were used as a new dichotomous variable (based on
the median) whose categories are: 1 = strong power, 0 = weak
power. The second variable, government continuity or incum-
bent seniority, reflects the number of terms the incumbent has
served in office. This variable is recoded into a dichotomous
variable (based on the median) 1 = two or more terms, 0 = one
term only. The last two variables are based on objective data
from the Ministry of the Interior. The third variable, incumbent
privatization tendency, is a qualitative variable based on two
items from the questionnaire: 1) is the foundation of the muni-
cipal company, in your opinion, considered as privatization? 1
= yes, 0 = No. 2) is municipality management better in the tra-
ditional way (without privatization) or with privatization? 1 =
with privatization, 0 = without privatization. The values of both
items are combined to a dichotomous variable (based on the
median) 0 = tendency to traditional policy (without privatiza-
tion), 1 = tendency to privatization. The values of the three di-
chotomous variables (political power, government continuity
and incumbent privatization tendency) are combined and coded
as a new dichotomous variable (by the median) 0 = week power
and privatization tendency, 1 = strong power and privatization
tendency. Mean of 0.47 and SD. of 0.5. Research Procedure:
The questionnaires were sent by mail to all heads of the Jewish2
municipalities (N = 180). One hundred and nineteen question-
naires were received; 13 questionnaires were rejected because
of various problems. Therefore 106 questionnaires were used,
representing 55% of all local municipalities in the target popu-
lation (specifically, 39 cities, 46 local councils and 21 regional
Major Findings
The research findings show that most of the local municipali-
ties in Israel (above 50%) deliver the following services through
full privatization: guarding of institutions 81%, accounting 70%,
garbage disposal 67%, legal advice 61%, infrastructure devel-
opment 53% and pest control 50%. In addition, over 50% of the
2The Arab local municipalities could not be included because of their refu-
sal to answer the questionnaire.
3See more in introduction, pp. 2-3.
Copyright © 2013 SciRes. 53
local municipalities deliver the following services through a
mixed privatization and traditional mode: maintenance of insti-
tutions 59%, sewage maintenance 53%, planning and public
building 51%, operation of installations 51%, roads 50%, cul-
ture 52% and leisure 56%. Finally, most of the local munici-
palities in Israel deliver the following services in the traditional
way: welfare 78%, veterinary services 65% and bookkeeping
50%. Theoretically we are dealing with four situations: 1) Posi-
tive previous experience/Strong incumbent; 2) Negative previ-
ous experience/Strong incumbent; 3) Positive previous experi-
ence/Weak incumbent (N = 6); 4) Negative previous experi-
ence/Weak incumbent (N = 3). However, through empirical
testing two situations with small observations (N = 6, N = 3)
were found; therefore, from the series of multiple regressions
performed, the major findings of these two situations with large
observations will be presented. In both situations there is a
strong incumbent but previous experience of privatization is
different: one is negative and the second positive (see Figure
A general combined model examines the effect of both po-
litical and economic variables on SOP, in addition to the two
moderator variables: PPE and IPPT.
The research hypothesis assumed that in situation (1) nega-
tive previous experience—the political variables would have a
greater effect than the economic variables on SOP in the local
municipality. When the incumbent is strong and previous pri-
vatization experience is positive (11), economic variables would
have a stronger effect than political variables on SOP. Due to
lack of research literature on ASDAs in Israel, this study was
based on studies published in American and European literature
(Melcher, 1994; Miller, 1987; Morgan et al., 1981; Poole, 1987;
Wong, 1988; Korosec, 1997; Boyne, 1998; Bel & Fageda, 2007,
2009; Wilkins, 2003 and others), which viewed fiscal pressures
as the reason for the adoption of ASDAs by local municipalities.
According to the assumptions of the economic model and based
on literature published in the United States, incentives (such as
change in land use) available to public officials may lead them
to adopt a set of strategies that are “optimal” from their stand-
point. Political leaders are constrained by economic arrange-
ments, yet they can choose how to respond to the economic
context as well as to other considerations, most notably what
they need to do to be re-elected4. To this end they will take
steps leading to local development that will prove their mana-
gerial and economic capabilities, concomitant with an aware-
ness of the limitations of economic organizational forms (Elkin,
1987: p. 8). Hecht’s study (2003) shows that a strong incum-
bent can make decisions and take measures to advance the mu-
nicipality, while adhering to the goal of proper management
and overcoming temporary situations involving changes within
and among political parties. Hecht maintains that under the ap-
propriate organizational, political, social and economic condi-
tions, local leaders will take the opportunity to generate change
Negative previous
Positive previous
Strong incumbent Hypothesis situation (1)
Political > economic
Hypothesis situation (11)
Economic > political
Figure 1.
Research hypotheses in the two situations.
in the local municipality. Therefore, a good understanding of
the factors which affect the adoption of ASDAs will help local
political leaders to choose suitable tools for efficient municipal
service delivery to its inhabitants.
Two multiple regressions were performed with the dependent
variable “scope of privatization” (SOP) and all the independent
variables, economic and political, using a double control me-
thod. The first regression was performed for the situation in
which previous privatization experience is negative and the in-
cumbent is strong (Table 1). The second regression was per-
formed for the situation in which previous privatization experi-
ence is positive and the incumbent is strong (Table 2).
The findings indicate that when previous privatization ex-
perience is negative and the incumbent is strong (Table 1) the
independent variables explain 24% of the variance in SOP (Adj
R2 = 0.24). However, the model is not statistically significant,
most likely due to the relatively small number of observations
(N = 30) and due to high correlations (co-linearity) between the
following independent variables: number of employees and ser-
vice provider availability (r = 0.79) and number of employees
and previous privatization experience (r = 0.83). It seems that
the correlations above account for the gap between the adjust-
ed-R2 and the R2. The results do not corroborate the research
hypothesis but most of the empirical studies have low explana-
tory power (Bel & Fageda, 2009). Nonetheless, the effect of po-
litical pressure on SOP is negative, reinforcing the hypothesis
that when previous privatization experience is negative, the po-
litical variables have a stronger effect on SOP.
When previous privatization experience is positive and the
incumbent is strong (Table 2) the effect of the political vari-
ables is stronger than that of the economic variables (two inde-
pendent political variables were found to be statistically signi-
ficant—age of municipality and number of employees, whereas
none of the economic variables were found to be statistically
significant). These findings are contrary to the research hypo-
thesis which maintained that in a local municipality with posi-
tive previous privatization experience and a strong incumbent,
the effect on SOP of the economic variables would be stronger
than that of the political variables (beta of political variables <
beta of economic variables). The research findings in Table 1
indicate that the number of employees has a negative influence
on SOP. In situation (2) = negative previous experience in priva-
tization, the findings are in accordance with the research hypo-
thesis, but in situation (1) = positive previous experience in pri-
vatization, the NOE has a positive influence on the SOP, and these
findings are contrary to the research hypothesis. The explana-
tion of the unexpected findings in the Israeli context is that lo-
cal municipalities that have positive previous experience in pri-
vatization tend towards more privatization through new em-
ployees. This is because privatization in Israeli local municipa-
lities is carried out mainly through municipal companies. Conse-
quently the municipality’s employees encourage privatization be-
cause they expect to benefit from it through the better conditions
and salaries they will get as municipal company employees.
Some of the unexpected findings can be attributed to the re-
liance on research hypotheses derived from studies conducted
in the United States (because of lack of research in Israel). Ra-
zin (2003), claimed that the situation in Israel differs from that
in other developed countries in which there is a considerable
gap between formal local municipal frameworks and actual be-
havior patterns. This gap stems from the inability of government
to adapt its behavior and cultural patterns to frequent reforms
4Some municipal leaders adopt ASDAs simply on ideological grounds and
this plays a major role for European and large cities (Bel & Fageda, 2009).
Copyright © 2013 SciRes.
Copyright © 2013 SciRes. 55
Table 1.
Multiple regression results when previous privatization experience is negative and incumbent is strong.
Variable name Unstandardized Coefficients Standardized coefficients
Variable type
B Std. Error Beta t Sig.
- Constant 1.008 1.127 0.895 0.383
Control variable Social cluster 0.054 0.028 0.373 1.917 0.071
Fiscal distress 0.002 0.005 0.066 0.318 0.754
Employee costs 0.004 0.012 0.088 0.340 0.738
Tax rate 0.002 0.009 0.052 0.229 0.822
Competitive environment 0.000 0.000 0.328 1.612 0.124
Economic variables
Service provider availability 0.330 0.115 0.577 2.873 0.010
Municipality age 0.002 0.002 0.212 0.973 0.344
Unemployment rate 4.119 3.724 0.289 1.106 0.283
Employee power 0.020 0.092 0.047 0.216 0.831
Demand for public service jobs0.076 0.075 0.201 1.011 0.325
Political variables
Number of employees 0.000 0.000 0.174 0.704 0.491
Note: R2 = 0.530 Adj R2 = 0.242 Sig = 0.120 N = 30.
Table 2.
Multiple regression results when previous privatization experience is positive and incumbent is strong.
Variable name Unstandardized Coefficients Standardized coefficients
Variable type
B Std. Error Beta t Sig.
- Constant 2.66 0.839 3.172 0.005
Control variable Social cluster 0.039 0.020 0.357 2.007 0.060
Fiscal stress 0.008 0.008 0.231 0.960 0.350
Employee costs 0.011 0.009 0.329 1.251 0.227
Tax rate 0.003 0.007 0.060 0.345 0.734
Competitive environment 0.000 0.000 1.09 0.577 0.571
Economic variables
Service provider availability 0.010 0.018 0.108 0.569 0.576
Municipality age 0.055 0.002 0.712 2.999 0.008
Unemployment rate 2.772 2.067 0.256 1.341 0.197
Employee power 0.049 0.061 0.130 0.800 0.434
Demand for public service jobs 0.113 0.068 0.331 1.649 0.116
Political variables
Number of employees 0.000 0.000 0.955 3.367 0.003
Note: R2 = 0.609 AdjR2 = 0.370 Sig = 0.038, N = 30.
undertaken in the formal and organizational local municipality
systems. In Israel, on the other hand, behavior patterns have
changed considerably, yet the formal-administrative establish-
ment has not sufficiently adapted to the new conditions. In ad-
dition, although Israeli local municipalities have an economic-
business management orientation, similar to US municipalities,
there are differences in the governing patterns, public admini-
stration systems and types of problems facing local municipali-
ties in Israel (as described on pp. 3-5). BenElia (1999) explains
that the deficit budget conditions under which most local mu-
nicipalities in Israel operate, that is, the cumulative result of
both local management failures and central government policy,
have created functioning difficulties and undermined the social
and economic stability of local municipalities. A more realistic
depiction is that local municipalities differ in the relative influ-
ence of the factors (economic or political) in accordance with
their unique political and economic reality and the influence of
interest groups on local policy (Mizrahi & Medani, 2003). The
findings confirm the centralization of central government and
the dominance of the political factors which shape the political
arena in Israel. In spite of the inability of government to adapt
its behavior and cultural patterns to frequent reforms under-
taken in the formal and organizational local municipal systems,
the change in local municipality behavior patterns and the ado-
ption of ASDAs represent market-based approaches to govern-
ment, decentralization and an effort to increase efficiency and
responsiveness of Israeli local municipalities.
Finally, empirical studies of local municipalities contracting
for services have suggested that the political factors still matter
when it comes to explaining patterns in local municipalities’
adoption of ASDAs (Femandez, Ryu, & Brudney, 2008; Hef-
fetz & Warner, 2004). The public service delivery and manage-
ment in local municipalities in Europe addressed two major
approaches to reforms: privatization, contracting-out, and “cor-
poratization” of local services on the one hand, and public ma-
nagement reforms on the other (Kuhlmann, 2008). The direc-
tion of the course of privatization in local municipalities in the
USA shows declining use of complete contracts and a dramatic
rise in mixed public-private delivery (joint contracting) of city
services (Warner & Hefetz, 2008). One of the main reasons is
the need to balance economic concerns with the political enga-
gement of citizens (Hefetz & Warner, 2007; Warner, 2009).
I accept the claim that fiscal and political constraints have
been found to contribute to local service privatization in the stu-
dies of U.S cases published in the 1980s. Thus, in more recent
work, Bel & Fageda (2009) show that the relationship between
privatization and these factors is less clear. But they also agree
that the motivations for privatization in studies that consider a
broad range of services (as has been done in this study) capture
more accurately the influence of fiscal and political constraints
on the privatization choices of local municipalities than do stu-
dies that examine just one service. Consequently, political fac-
tors still matter when it comes to explaining patterns in local
municipality contracting and still help to account for variations
in local municipality contracting as they did during the 1980s
(Fernandes, Ryu, & Brudney, 2008, Megginson & Netter, 2001).
Also in this study we have learned about the general trend of
Israeli local municipalities in adopting ASDAs and the condi-
tions under which we have to consider other factors which
might influence ASDAs, such as local municipality size, type
of service and the particular institutional framework of govern-
ment. The research findings show that not in every case of fis-
cal distress will the local municipality choose to adopt ASDAs.
Moreover, in some cases, in spite of the expected saving or ef-
ficiency in service delivery, political factors and reelection con-
siderations determine the mode of service delivery, in spite of
the fiscal distress of Israeli municipalities.
This article not only emphasizes the political orientation in
the decision-making process of the local municipalities, but also
aids researchers and practitioners to understand the considera-
tions involved in the decision-making process concerning the
supply of municipal services.
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