The objective of this study is to develop our understanding of how cooperation between local governments affects service delivery costs. The current study provides three contributions to the existing literature: (1) we assess the relation between inter‐municipal cooperation and service delivery costs for fire services; (2) we evaluate whether different forms of cooperation affect costs differently; and (3) we analyse how the number of cooperation partners affects the cooperation–cost relation. Theoretically, it is argued that cooperation promotes scale economies, but that increasing transaction costs from additional cooperation partners may outweigh these potential benefits. The data show that there are significant economies of scale linked to cooperation, but that this depends on the organizational form of the cooperation as costs are lower for contractual agreements than for joint organizations. Furthermore, cost benefits decrease significantly as the number of cooperation partners increases, and more so for contractual agreements than for joint organizations.