One of the dilemmas local governments confront in metropolitan service provision is how to ensure efficient supply of public services in a horizontally fragmented system of governments. A multiplicity of local jurisdictions enhances allocation efficiency by providing customized mixes of public services to suit local preferences. However, acting independently, local units can produce externalities and diseconomies of scale constraining Pareto-efficient supply. Externalities, positive or negative, occur when benefits or costs of a service spill over the boundaries of a jurisdiction. Likewise, diseconomies of scale arise when greater fragmentation limits the ability of local jurisdictions to reduce the average cost of production. These problems increase when decisions by one local government impact other local governments in ways that are not considered by the deciding government. This creates institutional collective action (ICA) problems in public goods supply (Feiock 2004, 2007).

How do local governments resolve such systemic problems in metropolitan service provision? The ICA framework outlined in Chapter 1 suggests that fragmented governments are often capable of solving interdependent problems endogenously so they are better off individually and collectively than they would be acting alone (Lubell et al. 2002). It is increasingly recognized that the key issues in service provision are less about whether a function should be public or private, and more about what configuration of formal and/or informal organizations is needed to perform that function (Wise 1990) and what the structural properties are of such configurations (Agranoff and McGuire 1998).