Systemic Risk in Networked Services: Implications for Governance by Julia Carboni
Assistant Professor, Public Administration and International Affairs The Maxwell School of Citizenship and Public Affairs, Syracuse University
Systemic Risk in Networked Services: Implications for Governance
Abstract: Government increasingly relies on complex arrangements of contracted providers to implement public policy but does not consider the possibility of systemic risk‐ the risk the contract system will collapse. Most public management research on contract management focuses on dyadic interactions between funders and contractors while interorganizational network scholarship overlooks the potential for network failure. This study examines systemic risk in complex, networked services funded by government and produced by a mix of public, nonprofit, and for‐profit actors. I employ affiliation network methods to understand network level systemic risk and to develop an index ranking the importance of individual actors in maintaining system stability. The empirical context for this study is state funded juvenile justice services over a five year period. Findings indicate that though the state has a well‐designed contract management system, it does not consider systemic risk when awarding individual contracts. Over time, the system created by individual contracts concentrated service production into handful of providers, increasing risks of catastrophic network failure if one of the “big” producers fails due to limited absorptive capacity in the system. This raises questions about whether and how government funders should attend to systemic risk in contracted services and has implications for governments’ ability to meet statutory obligations to provide services. It also raises questions about conditions under which networks of providers can withstand shocks such as organizational failure. This study makes several contributions. First, it addresses an overlooked issue in governance‐ systemic risk of contracted services. Though the issue is understudied, potential for systemic failures are present in all cases of networked services. Second, it demonstrates the utility of using secondary affiliation network data to understand complex structures used to implement public policy.