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Reducing Government Spending With Privatization Competitions: A Study Of The Department Of Defense Experience

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  • Christopher M. Snyder
  • Robert P. Trost
  • R. Derek Trunkey

Abstract

In a privatization competition, private contractors bid against an in-house team to perform a governmental function that is currently performed by the in-house team. The Department of Defense initiated 3,500 privatization competitions from 1978 to 1994, generating estimated annual savings of $1.46 billion. We estimate a reduced-form model of the savings from these competitions that takes into account the premature cancellation of some competitions and the censoring of the in-house bid at current cost. The Department of Defense maintains a list of candidates for future privatization competitions. Using our model, we forecast annual savings of $5.74 billion if privatization competitions were completed for all functions on this list. 2000 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

Suggested Citation

  • 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.
    • Handle: RePEc:tpr:restat:v:83:y:2001:i:1:p:108-117
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    Cited by:

    1. Jorge González Chapela & José M. Labeaga & Luis A. Medrano, 2019. "Further econometric evidence on the extent and sources of cost savings in competitively tendered contracts," Empirical Economics, Springer, vol. 56(2), pages 679-701, February.
    2. Fredrik Andersson & Henrik Jordahl & Jens Josephson, 2019. "Outsourcing Public Services: Contractibility, Cost, and Quality," CESifo Economic Studies, CESifo Group, vol. 65(4), pages 349-372.
    3. Andersson, Fredrik & Jordahl, Henrik, 2011. "Outsourcing Public Services: Ownership, Competition, Quality and Contracting," Working Paper Series 874, Research Institute of Industrial Economics.
    4. Jorge González Chapela, 2016. "Las ofertas en el procedimiento abierto: un estudio de las licitaciones de servicios realizadas por las Fuerzas Armadas españolas," Economic Analysis Working Papers (2002-2010). Atlantic Review of Economics (2011-2016), Colexio de Economistas de A Coruña, Spain and Fundación Una Galicia Moderna, vol. 2, pages 1-1, December.
    5. Peoples, James & Talley, Wayne K. & Wang, Bin, 2008. "U.S. public transit earnings, employment and privatization," Research in Transportation Economics, Elsevier, vol. 23(1), pages 99-106, January.
    6. Christopher M Snyder & Robert P Trost & R. Derek Trunkey, 2001. "Bidding behavior in the department of defense's commercial activities competitions," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 20(1), pages 21-42.

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