The Effect of Resource Dependence on Quasi-Markets

A growing number of firms compete in quasi-markets, spaces where they specialize in service traditionally left to the public sector. These firms are encouraged by government to enter these markets often on the grounds that service delivery by the private sector is inherently done more efficiently than in the public sector, motivating management scholars to frame the discussion of the privatization of public services as a sort of “make versus buy” decision for the public sector. This Cosian concept has evoked strands of Agency and Property Rights Theory to cite the differences in managerial structure of firms and their competing public counterparts, but quasi-market firms’ strong government resource dependence suggests that this dependence can influence the efficiency of quasi-market firms. Specifically, the presence of probity hazard sometimes inherent in rent-seeking behavior incentivizes government to influence firm operations, using these firms’ strong resource dependence as a mechanism. The resource dependence of proprietary quasi market firms, then, should influence their Technical efficiency. Using Data Envelopment Analysis and data from the higher education quasi-market, I estimate the relative efficiency of quasi-market firms and their public competitors, then estimates the effects of Resource Dependence on firm efficiency. I find that public firms are superior performers, and that resource dependence positively impacts the efficiency of proprietary firms. This study adds to the body of literature questioning the theoretical superior efficiency of proprietary quasi-market firms, and positions Resource Dependency Theory as having explanatory power in assessing the relative performance of quasi-market hierarchies.