This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

The Efficiency of Public Sector Outsourcing Contracts: A Literature Review

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Paul H. Jensen (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)
Robin E. Stonecash () (Australian Graduate School of Management, Universities of Sydney and New South Wales)

Additional information is available for the following registered author(s):

Abstract

Outsourcing the provision of traditionally publicly-provided services has become commonplace in most industrialized nations. Despite its prevalence, there still is no consensus in the academic literature on the magnitude (and determinants) of expected cost savings to the government, nor the sources of those savings. After articulating the differences between outsourcing and privatization, this article considers the arguments for (and against) outsourcing and then examines the empirical evidence pertaining to whether any observed savings occur and whether they persist over time. In addition, we examine the existing evidence for the "redistribution hypothesis" and the "quality-shading hypothesis", which critics have used to argue that outsourcing may result in lower government expenditure, but it does so by lowering wages and conditions for employees and lower quality services. Finally, we consider the impact of contract design on outsourcing outcomes. While the nature of the risk-incentive trade-off is well-known in the contract theory literature, some new empirical work has explored the application of this framework to outsourcing in order to understand the impact of the risk premium on outsourcing outcomes.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. 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://melbourneinstitute.com/wp/wp2004n29.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Melbourne Institute of Applied Economic and Social Research, The University of Melbourne in its series Melbourne Institute Working Paper Series with number wp2004n29.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 32 pages
Date of creation: Oct 2004
Date of revision:
Handle: RePEc:iae:iaewps:wp2004n29

Contact details of provider:
Postal: Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Victoria 3010 Australia
Phone: +61 3 8344 2100
Fax: +61 3 8344 2111
Email:
Web page: http://www.melbourneinstitute.com/
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Woei T Liew).

Related research
Keywords:

Other versions of this item:

This paper has been announced in the following NEP Reports: 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.:
  1. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June. [Downloadable!] (restricted)
  2. King, S.P., 1998. "Privatization: Does Reality Match the Rhetoric?," Department of Economics - Working Papers Series 634, The University of Melbourne.
  3. Artz, Kendall W. & Brush, Thomas H., 2000. "Asset specificity, uncertainty and relational norms: an examination of coordination costs in collaborative strategic alliances," Journal of Economic Behavior & Organization, Elsevier, vol. 41(4), pages 337-362, April. [Downloadable!] (restricted)
  4. Hart, Oliver & Shleifer, Andrei & Vishny, Robert W, 1997. "The Proper Scope of Government: Theory and an Application to Prisons," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1127-61, November.
    Other versions:
  5. 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.
  6. Andrei Shleifer, 1998. "State Versus Private Ownership," NBER Working Papers 6665, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law & Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
  8. Milgrom, Paul, 1989. "Auctions and Bidding: A Primer," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 3-22, Summer. [Downloadable!] (restricted)
  9. Demsetz, Harold, 1982. "Barriers to Entry," American Economic Review, American Economic Association, vol. 72(1), pages 47-57, March. [Downloadable!] (restricted)
    Other versions:
  10. Fehr, Ernst & Falk, Armin, 2002. "Psychological Foundations of Incentives," IZA Discussion Papers 507, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  11. 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. [Downloadable!] (restricted)
  12. James A. Brickley & Frederick H. Dark & Michael S. Weisbach, 1991. "An Agency Perspective on Franchising," Financial Management, Financial Management Association, vol. 20(1), Spring.
  13. Brian A. Jacob & Steven D. Levitt, 2003. "Rotten Apples: An Investigation of the Prevalence and Predictors of Teacher Cheating," NBER Working Papers 9413, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  14. Elbert Dijkgraaf & Raymond Gradus, 2004. "Cost savings of contracting out refuse collection," Public Economics 0409002, EconWPA. [Downloadable!]
    Other versions:
  15. Rafael La Porta & Florencio López-De-Silanes, 1999. "The Benefits Of Privatization: Evidence From Mexico," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1193-1242, November. [Downloadable!] (restricted)
    Other versions:
  16. Stefan Szymanski, 1993. "Cheap rubbish? Competitive tendering and contracting out in refuse collection, 1981-88," Fiscal Studies, Institute for Fiscal Studies, vol. 14(3), pages 109-30, August.
  17. Tirole, Jean, 1994. "The Internal Organization of Government," Oxford Economic Papers, Oxford University Press, vol. 46(1), pages 1-29, January. [Downloadable!] (restricted)
    Other versions:
  18. Edward P. Lazear, 2000. "Performance Pay and Productivity," American Economic Review, American Economic Association, vol. 90(5), pages 1346-1361, December. [Downloadable!] (restricted)
  19. 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.
  20. Haskel, Jonathan & Sanchis, Amparo, 1995. "Privatization and X-Inefficiency: A Bargaining Approach," CEPR Discussion Papers 1192, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  21. Erin Anderson & David C. Schmittlein, 1984. "Integration of the Sales Force: An Empirical Examination," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 385-395, Autumn. [Downloadable!] (restricted)
  22. Bajari, Patrick & Tadelis, Steven, 2001. "Incentives versus Transaction Costs: A Theory of Procurement Contracts," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 387-407, Autumn.
    Other versions:
  23. Francois, Patrick, 2000. "'Public service motivation' as an argument for government provision," Journal of Public Economics, Elsevier, vol. 78(3), pages 275-299, November. [Downloadable!] (restricted)
  24. Rajesh K. Aggarwal & Andrew A. Samwick, 1999. "The Other Side of the Trade-off: The Impact of Risk on Executive Compensation," Journal of Political Economy, University of Chicago Press, vol. 107(1), pages 65-105, February. [Downloadable!] (restricted)
    Other versions:
  25. Timothy Besley & Maitreesh Ghatak, 2003. "Incentives, Choice, and Accountability in the Provision of Public Services," Oxford Review of Economic Policy, Oxford University Press, vol. 19(2), pages 235-249, Summer.
    Other versions:
  26. John Cubbin & Simon Domberger & Shirley Meadowcroft, 1987. "Competitive tendering and refuse collection: identifying the sources of efficiency gains," Fiscal Studies, Institute for Fiscal Studies, vol. 8(3), pages 49-58, August.
  27. Boardman, Anthony E & Vining, Aidan R, 1989. "Ownership and Performance in Competitive Environments: A Comparison of the Performance of Private, Mixed, and State-Owned Enterprises," Journal of Law & Economics, University of Chicago Press, vol. 32(1), pages 1-33, April.
  28. Karlaftis, Matthew & McCarthy, Patrick, 1999. "The Effect of Privatization on Public Transit Costs," Journal of Regulatory Economics, Springer, vol. 16(1), pages 27-43, July. [Downloadable!] (restricted)
  29. Francine Lafontaine & Margaret E. Slade, 1998. "Incentive Contracting and the Franchise Decision," NBER Working Papers 6544, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  30. Roland Benabou & Jean Tirole, 2003. "Intrinsic and Extrinsic Motivation," Review of Economic Studies, Blackwell Publishing, vol. 70(3), pages 489-520, 07. [Downloadable!] (restricted)
  31. Pierre-André Chiappori ; Bernard Salanié, 2002. "Testing Contract Theory : A Survey of Some Recent Work," Working Papers 2002-11, Centre de Recherche en Economie et Statistique. [Downloadable!]
    Other versions:
  32. Simon Burgess & Marisa Ratto, 2003. "The Role of Incentives in the Public Sector: Issues and Evidence," Oxford Review of Economic Policy, Oxford University Press, vol. 19(2), pages 285-300, Summer.
  33. George Baker & Robert Gibbons & Kevin J. Murphy, 2002. "Relational Contracts And The Theory Of The Firm," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 39-84, February. [Downloadable!] (restricted)
  34. Oliver Hart, 2001. "Norms and the Theory of the Firm," NBER Working Papers 8286, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  35. 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. [Downloadable!] (restricted)
  36. 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!]
  37. Domberger, Simon & Piggott, John, 1986. "Privatization Policies and Public Enterprise: A Survey," The Economic Record, The Economic Society of Australia, vol. 62(177), pages 145-62, June.
  38. Hubbard, Thomas N, 2001. "Contractual Form and Market Thickness in Trucking," RAND Journal of Economics, The RAND Corporation, vol. 32(2), pages 369-86, Summer.
  39. David Fairris & Mark Brenner, 2001. "Workplace Transformation and the Rise in Cumulative Trauma Disorders: Is There a Connection?," Journal of Labor Research, Transaction Publishers, vol. 22(1), pages 15-28, January. [Downloadable!] (restricted)
  40. Daniel A. Ackerberg & Maristella Botticini, 2002. "Endogenous Matching and the Empirical Determinants of Contract Form," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 564-591, June. [Downloadable!] (restricted)
    Other versions:
  41. Nash, C A, 1993. "British Bus Deregulation," Economic Journal, Royal Economic Society, vol. 103(419), pages 1042-49, July. [Downloadable!] (restricted)
  42. 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. [Downloadable!] (restricted)
  43. Oliver Hart, 2001. "Norms and the Theory of the Firm," Harvard Institute of Economic Research Working Papers 1923, Harvard - Institute of Economic Research. [Downloadable!]
  44. Edwards, Franklin R & Stevens, Barbara J, 1978. "The Provision of Municipal Sanitation Services by Private Firms: An Empirical Analysis of the Efficiency of Alternative Market Structures and Regulatory Arrangements," Journal of Industrial Economics, Blackwell Publishing, vol. 27(2), pages 133-47, December. [Downloadable!] (restricted)
  45. Canice Prendergast, 2002. "The Tenuous Trade-off between Risk and Incentives," Journal of Political Economy, University of Chicago Press, vol. 110(5), pages 1071-1102, October. [Downloadable!] (restricted)
  46. Francine Lafontaine, 1992. "Agency Theory and Franchising: Some Empirical Results," RAND Journal of Economics, The RAND Corporation, vol. 23(2), pages 263-283, Summer. [Downloadable!] (restricted)
  47. Frey, Bruno S & Jegen, Reto, 2001. " Motivation Crowding Theory," Journal of Economic Surveys, Blackwell Publishing, vol. 15(5), pages 589-611, December. [Downloadable!] (restricted)
  48. Simon Burgess & Marisa Ratto, 2003. "The Role of Incentives in the Public Sector: Issues and Evidence," The Centre for Market and Public Organisation 03/071, Department of Economics, University of Bristol, UK. [Downloadable!]
  49. Allen, Douglas W & Lueck, Dean, 1999. "The Role of Risk in Contract Choice," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(3), pages 704-36, October.
  50. William L. Megginson & Jeffry M. Netter, 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. [Downloadable!] (restricted)
  51. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March. [Downloadable!] (restricted)
  52. Kevin Murdock, 2002. "Intrinsic Motivation and Optimal Incentive Contracts," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 650-671, Winter.
  53. Keith J. Crocker & Kenneth J. Reynolds, 1993. "The Efficiency of Incomplete Contracts: An Empirical Analysis of Air Force Engine Procurement," RAND Journal of Economics, The RAND Corporation, vol. 24(1), pages 126-146, Spring. [Downloadable!] (restricted)
  54. Coase, R H, 2000. "The Acquisition of Fisher Body by General Motors," Journal of Law & Economics, University of Chicago Press, vol. 43(1), pages 15-31, April.
  55. Laffont, Jean-Jacques & Tirole, Jean, 1991. "Privatization and Incentives," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 84-105, Special I.
    Other versions:
  56. 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.
  57. John Quiggin, 1994. "The Fiscal Gains from Contracting Out: Transfers or Efficiency Improvements," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 27(3), pages 97-102. [Downloadable!] (restricted)
  58. 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.
  59. Daron Acemoglu & Michael Kremer & Atif Mian, 2003. "Incentives in Markets, Firms and Governments," NBER Working Papers 9802, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Full references

Statistics
Access and download statistics

Did you know? All full texts are decentralized with the publishers, none reside on this server, thus making it possible to offer this service for free to all parties.

This page was last updated on 2009-11-22.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.