Local governments can provide services with their own employees or by contracting with private or public sector providers. We develop a model of this "make-or-buy" choice that highlights the trade-off between productive efficiency and the costs of contract administration. We construct a dataset of service provision choices by U.S. cities and identify a range of service and city characteristics as significant determinants of contracting decisions. Our analysis suggests an important role for economic efficiency concerns, as well as politics, in contracting for government services.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
13350.
Length: Date of creation: Aug 2007 Date of revision: Handle: RePEc:nbr:nberwo:13350
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Find related papers by JEL classification: D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Boundaries of Public and Private Enterprise; Privatization; Contracting Out
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