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Cost and Efficiency in Government Outsourcing: Evidence from the Dredging Industry

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  • Aaron Barkley

Abstract

This paper investigates the how government outsourcing affects efficiency and expenditures by considering how outsourcing decisions are determined along two dimensions: (i) cost differences between private firms and government suppliers of public goods and (ii) dynamics arising from cost complementarities and capacity constraints. I formulate and estimate a dynamic model of government outsourcing using project-level data from the dredging industry. Model estimates indicate substantial cost savings due to outsourcing but also that government presence in the market yields cost reduction. A counterfactual policy featuring direct competition between government and private sector firms finds a total expenditure reduction of 15.7 percent.

Suggested Citation

  • Aaron Barkley, 2021. "Cost and Efficiency in Government Outsourcing: Evidence from the Dredging Industry," American Economic Journal: Microeconomics, American Economic Association, vol. 13(4), pages 514-547, November.
    • Handle: RePEc:aea:aejmic:v:13:y:2021:i:4:p:514-47
    DOI: 10.1257/mic.20190018
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    Cited by:

    1. Asatryan, Zareh & Heinemann, Friedrich & Nover, Justus, 2022. "The other government: State-owned enterprises in Germany and their implications for the core public sector," ZEW Expert Briefs 22-08, ZEW - Leibniz Centre for European Economic Research.

    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • L84 - Industrial Organization - - Industry Studies: Services - - - Personal, Professional, and Business Services

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