Fragmentation among local governments often leads to inefficiencies in public service delivery. This challenge is particularly salient in delivering services for small communities. This study applies the Institutional Collective Action (ICA) framework and network analysis to examine how inter-local collaborative agreements can improve cost efficiency in water and wastewater services in Iowa. Integrating the theories of economies of scale and transaction costs, this study provides a nuanced understanding of how inter-local collaborative networks lower costs in service delivery. The findings reveal that while collaboration is widely considered a means to achieve economies of scale, local actor's network structure could play a more significant role in shaping actual efficiency gains. Specifically, in water services, cities in more tightly clustered networks experience lower efficiency. Conversely, in wastewater services, clustering is associated with higher efficiency by fostering resource sharing and enforcement mechanisms, but network centrality is associated with lower efficiency. These results suggest the importance of strategic management of collaborative ties to balance the benefits of economies of scale with the transaction costs of collaboration. The findings provide implications for policymakers aiming to improve public service efficiency through inter-local collaboration.