Network Embeddedness and Monitoring Mechanisms in Government-Nonprofit Public Service Delivery Agreements

We examine monitoring decisions made by governments when delivering services with nonprofit organizations in formal agreements. Our analysis suggests that the breadth of monitoring mechanisms that governments employ is more complex than shown in previous studies. We coded agreements in accordance with mechanisms identified in extant literature and employed inductive content analysis to establish 37 previously unexplored monitoring mechanisms. We next test the impact of governments’ and nonprofits’ network embeddedness on the use of these mechanisms across various institutional forms used in service delivery arrangements. Our research finds that governments increase monitoring when contracting out services in a “Service for Hire” arrangement and decrease monitoring when they are more embedded in their service delivery network. Motivated by questions of nonprofit reputation, we also find that the degree to which nonprofits are themselves connected to well connected actors reduces their monitoring burden. Further, we find that governments impose an increased monitoring burden in competitive environments while transaction costs have no unique significant effect on monitoring decisions. These findings reveal the amount of monitoring that governments use when more embedded within service delivery networks, and distinct avenues for obtaining information about nonprofits and the norms for monitoring them influence the regulatory burden imposed on nonprofits seeking to collaborate with governments.