Association for Public Policy Analysis & Management

Formal contracts between government and its partners are the foundation for collaborative governance and contain rich information about the structure of the relationship. Since parties cannot anticipate every possible contingency, contract provisions for adjustment and adaption can make all the difference for whether the exchange yields value. Building upon principal-agent theory and resource based perspectives, we hypothesize that parties’ design contracts to deal with uncertainties by including more adjustment and adaption mechanisms; however, the degree of partners’ interdependence is a moderating influence. We collect over 300 local government contracts and devise a coding scheme based on extant theory and interviews with contracting parties. We test the hypothesis using a dataset of over 300 local government contracts. In contradiction to research published and cited in the business journals and using replicated measures, we find support for our hypothesis. Our findings have implications for a theory of collaboration and for the design of collaborative governance mechanisms.