Advanced Search
MyIDEAS: Login

Outsourcing Public Services: Ownership, Competition, Quality and Contracting

Contents:

Author Info

  • Andersson, Fredrik

    ()
    (Lund University)

  • Jordahl, Henrik

    ()
    (Research Institute of Industrial Economics (IFN))

Abstract

We survey the literature on the effects of public sector outsourcing. Guided by theory, we systematically arrange services according to the type and magnitude of their contractibility problems. Taken as a whole, the empirical literature indicates that public sector outsourcing generally reduces costs without hurting quality. This is clearly the case for “perfectly contractible services” like garbage collection, but outsourcing often seems to work reasonably well also for some services with more difficult contracting problems, e.g. fire protection and prisons. Outsourcing seems to be more problematic for credence goods, with residential youth care as the prime example. In contrast to previous reviews, we conclude that ownership and competition appear to be about equally important for the consequences of public sector outsourcing.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.ifn.se/wfiles/wp/wp874.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 874.

as in new window
Length: 36 pages
Date of creation: 16 Jun 2011
Date of revision:
Handle: RePEc:hhs:iuiwop:0874

Contact details of provider:
Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
Phone: +46 8 665 4500
Fax: +46 8 665 4599
Email:
Web page: http://www.ifn.se/
More information through EDIRC

Related research

Keywords: Outsourcing; Contracts; Tendering; Ownership; Competition; Quality;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Martin Gaynor & Rodrigo Moreno-Serra & Carol Propper, 2013. "Death by Market Power: Reform, Competition, and Patient Outcomes in the National Health Service," American Economic Journal: Economic Policy, American Economic Association, vol. 5(4), pages 134-66, November.
  2. Paul Gregg & Paul A. Grout & Anita Ratcliffe & Sarah Smith & Frank Windmeijer, 2008. "How important is pro-social behaviour in the delivery of public services?," The Centre for Market and Public Organisation 08/197, Department of Economics, University of Bristol, UK.
  3. Paul A. Grout & Margaret Stevens, 2003. "The Assessment: Financing and Managing Public Services," Oxford Review of Economic Policy, Oxford University Press, vol. 19(2), pages 215-234, Summer.
  4. Alesina, Alberto F & Ardagna, Silvia & Nicoletti, Giorgio & Schiantarelli, Fabio, 2003. "Regulation and Investment," CEPR Discussion Papers 3851, C.E.P.R. Discussion Papers.
  5. Bennett, John & Iossa, Elisabetta, 2006. "Building and managing facilities for public services," Journal of Public Economics, Elsevier, vol. 90(10-11), pages 2143-2160, November.
  6. Nicholas Bloom & Carol Propper & Stephan Seiler & John van Reenan, 2010. "The Impact of Competition on Management Quality: Evidence from Public Hospitals," The Centre for Market and Public Organisation 10/237, Department of Economics, University of Bristol, UK.
  7. Klemperer, Paul, 2002. "How (Not) to Run Auctions: The European 3G Telecom Auctions," CEPR Discussion Papers 3215, C.E.P.R. Discussion Papers.
  8. Edward L. Glaeser & Andrei Shleifer, 1998. "Not-For-Profit Entrepreneurs," Harvard Institute of Economic Research Working Papers 1852, Harvard - Institute of Economic Research.
  9. Daron Acemoglu & Michael Kremer & Atif Mian, 2003. "Incentives in Markets, Firms and Governments," NBER Working Papers 9802, National Bureau of Economic Research, Inc.
  10. Domberger, S & Meadowcroft, S & Thompson, D, 1988. "Competition and efficiency in refuse collection : a reply," Fiscal Studies, Institute for Fiscal Studies, vol. 9(1), pages 86-90, February.
  11. Bayer, Patrick & Pozen, David E, 2005. "The Effectiveness of Juvenile Correctional Facilities: Public versus Private Management," Journal of Law and Economics, University of Chicago Press, vol. 48(2), pages 549-89, October.
  12. Benjamin E. Hermalin and Michael L. Katz., 1990. "Moral Hazard and Verifiability: The Effects of Renegotiation in Agency," Economics Working Papers 90-141, University of California at Berkeley.
  13. Klemperer, Paul, 1999. "Auction Theory: a Guide to the Literature," CEPR Discussion Papers 2163, C.E.P.R. Discussion Papers.
  14. Hart, Oliver D. & Moore, John, 1990. "Property Rights and the Nature of the Firm," Scholarly Articles 3448675, Harvard University Department of Economics.
  15. Eggleston, Karen, 2008. "Soft budget constraints and the property rights theory of ownership," Economics Letters, Elsevier, vol. 100(3), pages 425-427, September.
  16. Sanford J Grossman & Oliver D Hart, 2001. "An Analysis of the Principal-Agent Problem," Levine's Working Paper Archive 391749000000000339, David K. Levine.
  17. Elbert Dijkgraaf & Raymond Gradus, 2004. "Cost savings of contracting out refuse collection," Public Economics 0409002, EconWPA.
  18. Patrick Francois & Michael Vlassopoulos, 2008. "Pro-social Motivation and the Delivery of Social Services," CESifo Economic Studies, CESifo, vol. 54(1), pages 22-54, March.
  19. Klaus M. Schmidt, 1995. "Incomplete Contracts and Privatization," Discussion Paper Serie A 480, University of Bonn, Germany.
  20. Oliver Hart & Andrei Shleifer & Robert W. Vishny, 1996. "The Proper Scope of Government: Theory and an Application to Prisons," NBER Working Papers 5744, National Bureau of Economic Research, Inc.
  21. Grossman, Sanford J. & Hart, Oliver D., 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Scholarly Articles 3450060, Harvard University Department of Economics.
  22. Henry Ohlsson, 2003. "Ownership and Production Costs: Choosing between Public Production and Contracting-Out in the Case of Swedish Refuse Collection," Fiscal Studies, Institute for Fiscal Studies, vol. 24(4), pages 451-476, December.
  23. Domberger, S & Meadowcroft, S & Thompson, D, 1987. "The impact of competitive tendering on the costs of hospital domestic services," Fiscal Studies, Institute for Fiscal Studies, vol. 8(4), pages 39-54, November.
  24. Patrick Bajari & Gregory Lewis, 2009. "Procurement Contracting with Time Incentives: Theory and Evidence," NBER Working Papers 14855, National Bureau of Economic Research, Inc.
  25. Martimort, David & Pouyet, Jerome, 2008. "To build or not to build: Normative and positive theories of public-private partnerships," International Journal of Industrial Organization, Elsevier, vol. 26(2), pages 393-411, March.
  26. Philippe Aghion & Nicholas Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2002. "Competition and innovation: an inverted U relationship," IFS Working Papers W02/04, Institute for Fiscal Studies.
  27. Robin G. Milne & Robert E. Wright, 2004. "Competition and Costs: Evidence from Competitive Tendering in the Scottish National Health Service," Scottish Journal of Political Economy, Scottish Economic Society, vol. 51(1), pages 1-23, 02.
  28. Bulow, Jeremy & Klemperer, Paul, 1996. "Auctions versus Negotiations," American Economic Review, American Economic Association, vol. 86(1), pages 180-94, March.
  29. Bedard, Kelly & Frech, Ted E, 2007. "Prison Health Care: Is Contracting Out Healthy?," University of California at Santa Barbara, Economics Working Paper Series qt6vh3429f, Department of Economics, UC Santa Barbara.
  30. Ann P. Bartel & Ann E. Harrison, 2005. "Ownership Versus Environment: Disentangling the Sources of Public-Sector Inefficiency," The Review of Economics and Statistics, MIT Press, vol. 87(1), pages 135-147, February.
  31. Andersson, Fredrik, 2009. "Make-or-buy Decisions and the Manipulability of Performance Measures," Working Paper Series 815, Research Institute of Industrial Economics.
  32. Domberger, S & Meadowcroft, S & Thompson, D J, 1986. "Competitive tendering and efficiency: the case of refuse collection," Fiscal Studies, Institute for Fiscal Studies, vol. 7(4), pages 69-87, November.
  33. Oliver Hart, 2003. "Incomplete Contracts and Public Ownership: Remarks, and an Application to Public-Private Partnerships," Economic Journal, Royal Economic Society, vol. 113(486), pages C69-C76, March.
  34. Giuseppe Nicoletti & Stefano Scarpetta, 2003. "Regulation, productivity and growth: OECD evidence," Economic Policy, CEPR & CES & MSH, vol. 18(36), pages 9-72, 04.
  35. Henrik Christoffersen & Martin Paldam & Allan Würtz, 2007. "Public versus private production and economies of scale," Public Choice, Springer, vol. 130(3), pages 311-328, March.
  36. Gupta, Nandini & Ham, Jhon C. & Svejnar, Jan, 2008. "Priorities and sequencing in privatization: Evidence from Czech firm panel data," European Economic Review, Elsevier, vol. 52(2), pages 183-208, February.
  37. Stefan Szymanski, 1996. "The impact of compulsory competitive tendering on refuse collection services," Fiscal Studies, Institute for Fiscal Studies, vol. 17(3), pages 1-19, August.
  38. Baker, George P, 1992. "Incentive Contracts and Performance Measurement," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 598-614, June.
  39. Paul H. Jensen & Robin E. Stonecash, 2005. "Incentives and the Efficiency of Public Sector-outsourcing Contracts," Journal of Economic Surveys, Wiley Blackwell, vol. 19(5), pages 767-787, December.
  40. Stevens, Barbara J, 1978. "Scale, Market Structure, and the Cost of Refuse Collection," The Review of Economics and Statistics, MIT Press, vol. 60(3), pages 438-48, August.
  41. Ohlsson, Henry, 1996. "Ownership and input prices: A comparison of public and private enterprises," Economics Letters, Elsevier, vol. 53(1), pages 33-38, October.
  42. Domberger, Simon & Hall, Christine & Li, Eric Ah Lik, 1995. "The Determinants of Price and Quality in Competitively Tendered Contracts," Economic Journal, Royal Economic Society, vol. 105(433), pages 1454-70, November.
  43. Jeffry M. Netter & William L. Megginson, 2001. "From State to Market: A Survey of Empirical Studies on Privatization," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 321-389, June.
  44. Jonathan Levin & Steven Tadelis, 2010. "CONTRACTING FOR GOVERNMENT SERVICES: THEORY AND EVIDENCE FROM U.S. CITIES -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 58(3), pages 507-541, 09.
  45. Sandro Cabral & Sergio Lazzarini & Paulo Azevedo, 2010. "Private operation with public supervision: evidence of hybrid modes of governance in prisons," Public Choice, Springer, vol. 145(1), pages 281-293, October.
  46. Blom-Hansen, Jens, 2003. " Is Private Delivery of Public Services Really Cheaper? Evidence from Public Road Maintenance in Denmark," Public Choice, Springer, vol. 115(3-4), pages 419-38, June.
  47. Schmidt, Klaus M., 1996. "Incomplete contracts and privatization," Munich Reprints in Economics 19776, University of Munich, Department of Economics.
  48. AndréS GóMez-Lobo & Stefan Szymanski, 2001. "A Law of Large Numbers: Bidding and Compulsory Competitive Tendering for Refuse Collection Contracts," Review of Industrial Organization, Springer, vol. 18(1), pages 105-113, February.
  49. E. Dijkgraaf & R. H. J. M. Gradus, 2007. "Fair competition in the refuse collection market?," Applied Economics Letters, Taylor & Francis Journals, vol. 14(10), pages 701-704.
  50. Owen Thompson, 2011. "The estimated cost impact of privatizing student transportation in Minnesota school districts," Public Choice, Springer, vol. 146(3), pages 319-339, March.
  51. Robert McGuire & T. COTT, 1984. "Public versus private economic activity: A new look at school bus transportation," Public Choice, Springer, vol. 43(1), pages 25-43, January.
  52. José Manuel González-Páramo & Pablo Hernández Cos, 2005. "The Impact of Public Ownership and Competition on Productivity," Kyklos, Wiley Blackwell, vol. 58(4), pages 495-517, November.
  53. Christopher M. Snyder & Robert P. Trost & R. Derek Trunkey, 2001. "Reducing Government Spending With Privatization Competitions: A Study Of The Department Of Defense Experience," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 108-117, February.
  54. Robin Milne & Magnus McGee, 1992. "Compulsory competitive tendering in the NHS: a new look at some old estimates," Fiscal Studies, Institute for Fiscal Studies, vol. 13(3), pages 96-111, August.
  55. Canice Prendergast, 2003. "The Limits of Bureaucratic Efficiency," Journal of Political Economy, University of Chicago Press, vol. 111(5), pages 929-958, October.
  56. Domberger, Simon & Jensen, Paul, 1997. "Contracting Out by the Public Sector: Theory, Evidence, Prospects," Oxford Review of Economic Policy, Oxford University Press, vol. 13(4), pages 67-78, Winter.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Laun, Lisa & Thoursie, Peter Skogman, 2014. "Does privatisation of vocational rehabilitation improve labour market opportunities? Evidence from a field experiment in Sweden," Journal of Health Economics, Elsevier, vol. 34(C), pages 59-72.
  2. Elinder, Mikael & Jordahl, Henrik, 2013. "Political preferences and public sector outsourcing," European Journal of Political Economy, Elsevier, vol. 30(C), pages 43-57.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:hhs:iuiwop:0874. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Elisabeth Gustafsson).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.