Privatization of State Administrative Services

Abstract:     
Privatization of government services has been touted as a cost-savings approach for state agencies, promising to harness the efficiencies of market forces to overcome the perceived inefficiencies of bureaucracies. Empirical and anecdotal evidence indicates that such savings rarely materialize, and instead outsourcing is often a bad deal for taxpayers. This paper explores the inherent problems in the contractual arrangements for these attempts at government outsourcing. Perverse incentives, transaction costs, non-competitive bidding, the nature of government services handled on the state level, and conflicting legal rules regarding interpretation all contribute to the failure of privatization for the states.

Keywords: privatization, delegation, nondelegation, administrative, government, contracts, transaction costs

JEL Classifications: L33, H57, H41, H51, H53, H72, H70, I38, K23, D73

Accepted Paper Series