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Contracting for Government Services: Theory and Evidence from U.S. Cities

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Jonathan Levin
Steven Tadelis

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Abstract

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.

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Date of creation: Aug 2007
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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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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. Florencio Lopez-de-Silanes & Andrei Shleifer & Robert Vishny, 1997. "Privatization in the United States," RAND Journal of Economics, The RAND Corporation, vol. 28(3), pages 447-471, Autumn. [Downloadable!] (restricted)
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  2. Boycko, Maxim & Shleifer, Andrei & Vishny, Robert W, 1996. "A Theory of Privatisation," Economic Journal, Royal Economic Society, vol. 106(435), pages 309-19, March. [Downloadable!] (restricted)
  3. Steven Tadelis, 2002. "Complexity, Flexibility, and the Make-or-Buy Decision," American Economic Review, American Economic Association, vol. 92(2), pages 433-437, May. [Downloadable!]
  4. Barzel, Yoram, 1982. "Measurement Cost and the Organization of Markets," Journal of Law & Economics, University of Chicago Press, vol. 25(1), pages 27-48, April.
  5. 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.
  6. Masten, Scott E, 1984. "The Organization of Production: Evidence from the Aerospace Industry," Journal of Law & Economics, University of Chicago Press, vol. 27(2), pages 403-17, October.
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(explanations, 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. Elisabetta Iossa & David Martimort, 2008. "The Simple Micro-Economics of Public-Private Partnerships," CEIS Research Paper 139, Tor Vergata University, CEIS, revised 19 Dec 2008. [Downloadable!]
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  2. Tirole, Jean, 2008. "Cognition and Incomplete Contracts," IDEI Working Papers 453, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
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  3. Athias, Laure & Saussier, Stéphane, 2007. "Contractual flexibility or rigidity for public private partnerships? Theory and evidence from infrastructure concession contracts," MPRA Paper 10541, University Library of Munich, Germany. [Downloadable!]
  4. Xavier Fageda & Germa Bel, 2008. "Choosing hybrid organizations for local servicesdelivery: An empirical analysis of partial privatization," IREA Working Papers 200803, University of Barcelona, Research Institute of Applied Economics, revised Apr 2008. [Downloadable!]
  5. Lindqvist, Erik, 2008. "Will Privatization Reduce Costs?," Working Paper Series 736, Research Institute of Industrial Economics. [Downloadable!]
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  6. Eric Maskin & Jean Tirole, 2006. "Public-private Partnerships and Government Spending Limits," Economics Working Papers 0075, Institute for Advanced Study, School of Social Science. [Downloadable!]
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  7. 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!]
  8. Bennedsen, Morten / Schultz, Christian, 2007. "Arm’s Length Provision of Public Services," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
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