Effects of Autonomy, Performance Contracting, and Competition on the Performance of a Public Agency: A Case Study

What effects do new control mechanisms have that governments use to monitor the performance of quasi‐autonomous public agencies? The control mechanisms under review are managerial autonomy, performance contracts, financial incentives, and competition. Using principal‐agent theory, a theoretical model is developed. In order to assess its value for further empirical research this model is then confronted with evidence of an in‐depth case study of a Flemish public agency, which encompasses two embedded cases. In this case, the four control mechanisms seem to induce the public agency to performance‐enhancing behavior through ways assumed in the theoretical model, but only under very specific conditions. The case study points to another and seemingly more fundamental motivation for such behavior, that is, the need of the public agency to strengthen or restore its legitimacy toward its customers and especially toward its political principals, when it is confronted with certain threats to legitimacy.