Comparative governance of for‐profit provision of public services: Investor‐owned firms versus cooperatives as internet providers

Research Summary We examine the comparative governance of for‐profit provision of public services, distinguishing between two types of for‐profit providers: investor‐owned firms (IOFs) and cooperatives. We argue that because cooperatives are owned and operated by those who benefit directly from the positive externalities generated by public services they are well suited to serving poor or high cost communities that may be underserved by IOFs, and that this will be especially true when they serve less diverse communities or needs. We test and find support for these predictions in the context of internet service provision in the United States. Our study thus offers a discriminating alignment perspective on the provision of public services, while also shedding light on the role of cooperatives in addressing societal grand challenges. Managerial Summary Public infrastructure and services provide two types of benefits: specific benefits to their users and general benefits to the communities they serve. Investor‐owned for‐profit firms only capture value through the payments they receive from users, however, so they may provide poorer quality service to poor or rural communities, causing such communities to be left behind. In this study, we argue that cooperatives—which are owned and controlled by members of the community themselves—represent a potential solution to this problem. Using internet service provision in the United States as a context, we show that cooperatives are more likely to enter rural and low‐income communities where existing firms are providing low quality service, and to provide higher quality service when they do so.