Reducing Government Spending with Privatization Competitions: A Study of the Department of Defense Experience

Posted: 12 Oct 2000

See all articles by Christopher M. Snyder

Christopher M. Snyder

Dartmouth College - Department of Economics

Robert P. Trost

George Washington University - Department of Economics

R. Derek Trunkey

CBO; GW Department of Economics

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Abstract

In a privatization competition, private contractors bid against an in-house team to perform a governmental function currently performed by the in-house team. The Department of Defense initiated 3,500 privatization competitions from 1978 to 1994, generating annual savings of $1.46 billion. We estimate a reduced-form model of the savings from these competitions which takes into account (1) premature cancellation of some competitions and (2) 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.

JEL Classification: L33, H56

Suggested Citation

Snyder, Christopher M. and Trost, Robert P. and Trunkey, Robert Derek, Reducing Government Spending with Privatization Competitions: A Study of the Department of Defense Experience. Available at SSRN: https://ssrn.com/abstract=245327

Christopher M. Snyder (Contact Author)

Dartmouth College - Department of Economics ( email )

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Robert P. Trost

George Washington University - Department of Economics ( email )

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Robert Derek Trunkey

CBO ( email )

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GW Department of Economics ( email )

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