This paper aims to answer the question, “If establishing close partnerships among local governments can create common interests, why do local governments not establish such parternships?” Following from this question, this paper attempts to use the institutional approach of new institutional economics to analyze the obstacles and opportunities for the establishment of partnerships among local governments in Taiwan. This study finds that the laws of regional governance do not provide institutional incentives for local governments to form partnerships. When considering informal rules, the study finds that each local government’s selfish departmentalism and local political conflicts put them at a disadvantage in collaborating with one another. In regard to the enforcement of rules, the study finds that the gap in governing capacity or resources among different governments can influence the weaker ones to refuse to collaborate with others that can cause them to lose their autonomy. Finally, based on the lessons from foreign cases and the transaction costs in the institutional design, the author suggests that the administrative corporation could be a bold new institution of regional governance in Taiwan.