Does Not-for-Profit Corporatization Improve the Performance of Local Public Services?

This study examines whether converting local government services into not-for-profit corporations improves service performance. Using data from over 200 Dutch municipalities between 2005 and 2018, the authors analyze refuse collection outcomes before and after corporatization. Employing a difference-in-differences strategy, they find that corporatization reduces service costs by approximately 5% without compromising quality. The effects are larger when municipalities retain full ownership and control of the not-for-profit entities. There is no evidence of workforce reductions, suggesting efficiency gains stem from operational improvements rather than labor cuts. These findings suggest that not-for-profit corporatization can enhance public service efficiency without sacrificing public accountability.

Full Citation and Link to Article

Alonso, J. M., & Andrews, R. (2025). Does not‑for‑profit corporatization of local public services improve performance? Journal of Policy Analysis and Management. https://doi.org/10.1002/pam.22667 

Extended Summary

Central Research Question

This article investigates whether transforming local government services into not-for-profit (NFP) corporations leads to improved service performance. Specifically, the study explores whether this form of organizational reform enhances cost-efficiency and service quality, compared to traditional municipal service provision. The core question is: Does corporatizing public services into not-for-profit entities improve outcomes without undermining public accountability or workforce stability? The authors focus on the solid waste collection sector in the Netherlands as a representative and data-rich case for empirical analysis.

Previous Literature

Over recent decades, governments have experimented with various strategies to improve public service delivery, including privatization, public-private partnerships, outsourcing, and corporatization. Corporatization refers to the transformation of a public agency into a semi-autonomous entity governed by corporate-style principles, often with its own legal and financial structures. Scholars have long debated its merits.

The literature suggests that corporatization can increase operational flexibility, reduce political interference, and enhance performance through clearer accountability and professional management (e.g., Aulich et al. 2001; Hodge 2000). However, concerns persist about mission drift, reduced democratic oversight, and potential adverse effects on labor and equity (e.g., Christensen and Lægreid 2003).

Most prior studies have focused on fully commercialized or for-profit models. Less attention has been paid to NFP corporatization, where governments maintain full ownership but adopt corporate governance structures. Theoretically, NFP entities could offer a middle path—combining efficiency incentives with retained public control. Yet empirical evidence on their effectiveness remains sparse, particularly regarding municipal services.

Data

The study uses a rich panel dataset covering more than 200 Dutch municipalities between 2005 and 2018. The focus is on refuse collection—a service that is routinely corporatized and for which reliable data on performance and structure exist.

Key data sources include:

1. Administrative data on service costs and output from the Dutch Central Bureau of Statistics (CBS).

2. Municipal accounts detailing financial expenditures, ownership structures, and organizational forms.

3. Labor force information on public sector employment levels and wages.

4. Survey data and quality audits that assess refuse collection performance (e.g., complaints, timeliness).

5. Legal records identifying the governance status of service providers (public agency, municipal NFP, or private firm).

Municipalities that corporatize their waste services are identified and tracked across time, enabling a longitudinal assessment of pre- and post-corporatization outcomes.

Methods

The study employs a difference-in-differences (DiD) estimation strategy to evaluate the causal impact of corporatization. This method compares changes in performance metrics between municipalities that adopted NFP corporatization and a matched group of municipalities that continued with traditional public service delivery, before and after the reform.

The authors implement several robustness checks:

• Propensity score matching to balance pre-treatment characteristics between treated and control groups.

• Event study models to assess dynamic effects and test for parallel pre-trends.

• Placebo tests using non-reformed municipalities and alternative time periods.

• Instrumental variable estimation using political turnover and administrative reforms as instruments for corporatization likelihood.

The primary outcomes examined include:

• Service cost per household

• Service quality (complaints per capita, missed pickups)

• Employment levels and wage costs

• Citizen satisfaction (when available)

The analysis also explores heterogeneity in effects by ownership level (e.g., single-municipality vs. multi-municipality NFPs) and governance structure (e.g., presence of municipal council oversight).

Findings/Size Effects

The results reveal several key findings regarding the effects of not-for-profit corporatization:

1. Cost Efficiency Gains

   Corporatization leads to statistically and economically significant reductions in refuse collection costs.

   
   

   • On average, service costs decline by approximately 5% relative to pre-corporatization levels.

   • The effect is robust across specifications and persists over time.

   • Municipalities with single-owner NFPs experience larger cost reductions (up to 7%), suggesting that full ownership maintains strong alignment between public goals and operational efficiency.

   
   

2. Service Quality Maintained

   
   

   • There is no statistically significant decline in service quality following corporatization.

   • Key performance indicators, such as complaints per household and timeliness of collection, remain stable or slightly improve.

   • No evidence suggests that cost savings come at the expense of citizen satisfaction or service standards.

   
   

3. No Workforce Reductions

   
   

   • Employment levels in the refuse collection sector do not decline post-corporatization.

   • Wage levels and labor costs remain steady, implying that efficiency gains are not achieved by cutting labor costs.

   • These findings contrast with many privatization studies, where labor shedding is a common cost-saving strategy.

   
   

4. Governance Matters

   
   

   • Municipalities that maintain stronger oversight and governance mechanisms—such as direct representation on the NFP’s board—tend to experience better outcomes.

   • Multi-municipality NFPs, which involve coordination among several local governments, achieve smaller efficiency gains, possibly due to diluted accountability.

   
   

5. Timing and Persistence

   
   

   • Cost reductions emerge within the first two years after corporatization and persist throughout the study period.

   • There is no significant evidence of reversion or diminishing benefits over time.

   
   

6. Placebo and Pre-Trend Tests

   
   

   • Event study graphs show parallel trends before corporatization, supporting the validity of the DiD design.

   • Placebo reforms in untreated municipalities do not yield similar results, strengthening causal claims.

   
   

7. Instrumental Variable Results

   
   

   • IV estimates confirm the main DiD findings, although effect sizes are slightly larger, suggesting that municipalities that choose to corporatize may differ slightly in unobserved ways that attenuate naïve estimates.

   
   

Conclusion

The study concludes that not-for-profit corporatization offers a viable reform strategy for improving the efficiency of local public services without undermining service quality or workforce stability. In contrast to full privatization, which often involves profit incentives and reduced public control, NFP corporatization retains public ownership while harnessing the operational flexibility of corporate governance.

These results suggest that corporatization can strike a productive balance between efficiency and accountability, especially when local governments maintain strong oversight and avoid diluted governance structures. The Dutch case, with its institutional transparency and legal safeguards, provides a promising model for other countries seeking pragmatic reforms in public service delivery.

From a policy perspective, the findings support thePublic cautious expansion of NFP corporatization in sectors where market incentives alone may not guarantee public value. They also reinforce the importance of clear legal structures, municipal ownership, and accountability mechanisms to preserve the public interest.

Future research could explore whether similar benefits arise in other service domains—such as water, transit, or housing—and in different institutional contexts. Moreover, studies might examine the political and administrative conditions under which corporatization is most likely to succeed.

Overall, this article makes a valuable contribution to the public administration and policy literature by providing rigorous, empirical evidence on the effectiveness of a frequently debated reform strategy. It demonstrates that public sector innovation need not come at the expense of equity or control—and that not-for-profit corporatization can offer a high-performing alternative to both traditional bureaucracy and full privatization.