This dissertation examines the factors influencing a state’s decision to adopt a local government investment pool (LGIP), the institutional arrangements used in managing them, and the effect of the institutional types on LGIP performance. The dissertation extends the policy adoption theory with insights from investment theory to demonstrate that management credibility influences the likelihood of a state’s LGIP adoption. The study finds that the quality of financial management, the quality of professional leadership, proximate state neighbors who have previously adopted an LGIP, and economic factors determine a state’s proclivity to policy adoption. The dissertation also describes the institutional arrangements used in managing LGIPs and develops typologies based on their institutional arrangements. The dissertation compares LGIPs depending on the risk aversion of their institutional arrangements. The research extends the risk-return tradeoff in investment theory to LGIP institutional arrangements. The empirical findings show that LGIP institutional arrangement that has greater risk report higher performance. The dissertation also finds that competition in the LGIP market due to multiple vendors, and periods of economic recession account for higher performance because of higher risk-taking behaviors associated with them. This dissertation promotes public funds investment laws that emphasize prudent management of government finances and guides managers of the public purse on the types of institutional choices that optimize returns with minimal risk.