Do Markets Shape Management? Experimental Evidence for the Effects of Competition on Contract Management

ABSTRACT A central aim of contracting is to introduce competition into public service delivery. Public organizations are facing calls to generate more competition for their contracts, yet there is conflicting evidence about the effects of competition in practice. This research aims to explain some of those mixed findings by investigating the effects of different levels of competition on contract management. It examines two crucial elements of contract management that previous literature has shown can substantially influence performance outcomes: flexibility and monitoring. In highly contested markets, relationships are likely to be shorter and the payoffs from more restrictive styles of management are higher, thereby encouraging managers to be less flexible and monitor more. Findings, from an online survey experiment with 576 public managers, indicate that high competition does indeed lead to less flexibility and more monitoring, while low competition leads to less intense monitoring.