0 Big Guys Eat Big Cakes: Firm Size and Contracting In Urban and Rural Areas Germà Bel a b and Xavier Fageda a a Universitat de Barcelona b Barcelona Graduate School of Economics Abstract: A great deal of attention has been devoted to the analysis of different levels of privatization in urban and rural areas. However, no empirical study has been carried until now on what types of firms are present in different geographical environments. We find that large firms that operate on national basis dominate the contracts in the most populated and urban municipalities, and these firms seem to have closer relationships with nation-wide political parties. On the contrary, small firms that operate at a local level usually have the contracts in the less populated and isolated municipalities. This market structure may be harmful for competition in both types of municipalities, damaging the likelihood of obtaining cost savings from privatization. Keywords: Privatization, Contracting out, Political parties, Local Services, Metropolitan areas JEL-Codes: H11, L33, R50 Acknowledgements: Our research on local privatization has received financial support from the Spanish Commission of Science and Technology (CICYT, SEJ2006-04985), and from the Catalonian Competition Commission. We have benefited from comments received when the paper was presented in seminars at Universitat de Barcelona and Universidad Pública de Navarra, as well as in the XI Encuentros de Economía Aplicada. Particularly interesting suggestion have been received from Pablo Arocena, Alejandro Bello, Trevor Brown, Peter Claeys, Ignacio Contín, and Emilio Huerta. We are thankful to Laia Domènech for very helpful research assistance.