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  3. American Economic Journal: Microeconomics
  4. November 2021
  5. Cost and Efficiency in Government Outsourcing: Evidence from the Dredging Industry

Cost and Efficiency in Government Outsourcing: Evidence from the Dredging Industry

  • Aaron Barkley
American Economic Journal: Microeconomics
vol. 13, no. 4, November 2021
(pp. 514-47)
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Abstract

This paper investigates the how government outsourcing affects efficiency and expenditures by considering how outsourcing decisions are determined along two dimensions: (i) cost differences between private firms and government suppliers of public goods and (ii) dynamics arising from cost complementarities and capacity constraints. I formulate and estimate a dynamic model of government outsourcing using project-level data from the dredging industry. Model estimates indicate substantial cost savings due to outsourcing but also that government presence in the market yields cost reduction. A counterfactual policy featuring direct competition between government and private sector firms finds a total expenditure reduction of 15.7 percent.

Citation

Barkley, Aaron. 2021. "Cost and Efficiency in Government Outsourcing: Evidence from the Dredging Industry." American Economic Journal: Microeconomics, 13 (4): 514-47. DOI: 10.1257/mic.20190018

Additional Materials

JEL Classification

  • D44 Auctions
  • H41 Public Goods
  • H57 National Government Expenditures and Related Policies: Procurement
  • L84 Personal, Professional, and Business Services
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