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Contracting Out by the Public Sector: Theory, Evidence, Prospects

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Author Info
Domberger, Simon
Jensen, Paul

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Abstract

Unlike privatization, contracting out (or simply 'contracting') does not generally involve the sale of publicly owned assets. Yet it has been widely used as a mechanism for reform of public-sector service provision. Contracting introduces ex-ante competition-competition for the market through competitive tendering. This article examines both the theory and evidence of contracting by the public sector. It considers the theoretical conditions, such as contractual incompleteness and the ownership of physical assets, which may impede efficient contracting. It also reviews the international evidence which suggests that savings in the order of 20 percent are achievable, without sacrificing the quality of service provided. In the UK, savings of between 240m Pounds and 280m Pounds have been estimated for contracts let at the central government level. Substantial savings have also been generated by contracting at the local government level. Copyright 1997 by Oxford University Press.

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Publisher Info
Article provided by Oxford University Press in its journal Oxford Review of Economic Policy.

Volume (Year): 13 (1997)
Issue (Month): 4 (Winter)
Pages: 67-78
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Handle: RePEc:oup:oxford:v:13:y:1997:i:4:p:67-78

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  2. Eoin Reeves & Michael Barrow, 2000. "The Impact of Contracting Out on the Costs of Refuse Collection Services - The Case of Ireland," The Economic and Social Review, Economic and Social Studies, vol. 31(2), pages 129-150. [Downloadable!]
  3. Germà Bel & Xavier Fageda, 2008. "Privatization and competition in the delivery of local services: An empirical examination of the dual market hypothesis," Working Papers XREAP2008-4, Xarxa de Referència en Economia Aplicada (XREAP), revised Apr 2008. [Downloadable!]
  4. Lindqvist, Erik, 2007. "Will Privatization Reduce Costs?," Working Paper Series in Economics and Finance 660, Stockholm School of Economics. [Downloadable!]
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  5. Christoffersen, Henrik & Paldam, Martin, 2004. "Privatization in Denmark, 1980-2002," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  6. Andersson, Fredrik, 2009. "A Trickle-Down Theory of Incentives with Applications to Privatization and Outsourcing," Working Paper Series 784, Research Institute of Industrial Economics. [Downloadable!]
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  7. Valila, Timo, 2005. "How expensive are cost savings? On the economics of public-private partnerships," EIB Papers 4/2005, European Investment Bank, Economic and Financial Studies. [Downloadable!]
  8. Elke J. Jahn & Wolfgang Ochel, 2005. "Contracting Out Temporary Help Services in Germany," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  9. Gunnar Bårdsen & Erik Amdal & Kåre Johansen & Morten Welde, 2006. "Operating costs in Norwegian toll companies: A panel data analysis," Working Paper Series 6906, Department of Economics, Norwegian University of Science and Technology. [Downloadable!]
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  10. Jean-Etienne de Bettignies & Thomas W. Ross, 2004. "The Economics of Public-Private Partnerships," Canadian Public Policy, University of Toronto Press, vol. 30(2), pages 135-154, June. [Downloadable!] (restricted)
  11. Germa Bel & Anton Costas, 2004. "Do public sector reforms get rusty? An empirical analysis on privatization of solid waste collection," Public Economics 0409014, EconWPA. [Downloadable!]
  12. Branco Ponomariov & Gordon Kingsley, 2008. "Applicability of the Normative Model of Outsourcing in the Public Sector: The Case of a State Transportation Agency," Public Organization Review, Springer, vol. 8(3), pages 253-272, September. [Downloadable!] (restricted)
  13. Walls, Margaret, 2003. "How Local Governments Structure Contracts with Private Firms: Economic Theory and Evidence on Solid Waste and Recycling Contracts," Discussion Papers dp-03-62, Resources For the Future. [Downloadable!]
  14. Ann Dryden Witte & Robert Witt, 2001. "What We Spend and What We Get: Public and Private Provision of Crime Prevention," NBER Working Papers 8204, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  15. Paul A Grout & Margaret Stevens, 2003. "Financing and Managing Public Services: An Assessment," The Centre for Market and Public Organisation 03/076, Department of Economics, University of Bristol, UK. [Downloadable!]
  16. Paul H. Jensen & Robin E. Stonecash, 2004. "The Efficiency of Public Sector Outsourcing Contracts: A Literature Review," Melbourne Institute Working Paper Series wp2004n29, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne. [Downloadable!]
  17. Ohlsson, Henry, 1998. "Ownership and Production Costs - Choosing Between Public Production and Contracting Out," Working Paper Series 1998:6, Uppsala University, Department of Economics. [Downloadable!]
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  18. E. Dijkgraaf & R. Gradus, 2003. "Cost Savings of Contracting Out Refuse Collection," Empirica, Springer, vol. 30(2), pages 149-161, June. [Downloadable!] (restricted)
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  19. Paul Bennett, 2006. "Competing for the Island Lifeline: European Law, State Aid and Regional Public Services," Regional Studies, Taylor and Francis Journals, vol. 40(8), pages 953-966, November. [Downloadable!] (restricted)
  20. Jorge Guardiola & Francisco González-Gómez & Miguel A. García-Rubio, 2008. "Is the time dimension really important in research into contracting out?," FEG Working Paper Series 08/02, Faculty of Economics and Business (University of Granada). [Downloadable!]
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