Background: Transaction cost economics predicts that as scale increases, transaction costs are minimised by internalising transactions to form firm-like or bureaucratic governance structures. In contrast, in India, where an estimated 5 million people are living with HIV/AIDS, HIV prevention services for vulnerable groups are being scaled up by contracting with NGOs. Using a qualitative case study approach, this paper compares the transaction costs and governance of contracting with NGOs in two states in India in the context of scaling up. Methods: The state AIDS programmes of Tamil Nadu (TN) and Andhra Pradesh (AP) were selected according to HIV prevalence and number of government funded contracts. To obtain the NGO perspective, 17 were chosen, stratified by state, age, capacity, and target group. Information was collected through document review and semi-structured interviews on: contract design and negotiation; monitoring mechanisms; actions to ensure contract enforcement; asset specificity; and scaling up. Interviewees included the state AIDS programme director, NGO staff, and those responsible for design and management of the contracts. Factors affecting transaction costs and governance were identified, classified according to institutional environment, organisational, service and transaction characteristics and compared.Results: Two contracting models were identified: direct contracting; and contracting a management agency to manage recruitment, monitoring and evaluation and technical support. Preliminary findings suggest the management agency's closer \"control\" reduces opportunity costs of leakage and poor quality.Conclusion: The findings support more hierarchical governance that reduce the opportunity costs of poorly managed transactions in spite of their higher financial costs.
Guinness, L. What can transaction costs tell us about governance in the delivery of large scale HIV prevention programmes in southern India? Social Science and Medicine (2011) 72 (12) 1939-1947. [DOI: 10.1016/j.socscimed.2011.01.019]