Purchase-of-Service Contracting in Estonia

Abstract

We examine the use of purchase-of-service contracting in transition countries, focusing on a case study of Estonian social-welfare-services contracting at the local level. Given the nature of transition economies, we expect to find the use of relational contracting to offset problems of thin markets. We find this is the case; however, we also find that the relational contracting strategy is being pursued in the context of short-term contracting. We also find that Estonian local government officials most often view the primary benefit of contracting not in terms of enhancing efficiency or effectiveness, but rather in ensuring continuous service delivery. The combination of these two findings produces a risky situation for Estonia's citizens.