Efficient Local Government Service Provision: The Role of Privatization and Public Sector Unions

Posted: 24 Mar 2016

See all articles by Rhiannon Jerch

Rhiannon Jerch

Cornell University - Dyson School of Applied Economics and Management

Matthew E. Kahn

University of Southern California; National Bureau of Economic Research (NBER)

Shanjun Li

Cornell University - School of Applied Economics and Management

Date Written: March 8, 2016

Abstract

Local governments spend roughly $1.6 trillion per year to provide a variety of public services ranging from police and fire protection to public schools and public transit. However, we know little about public sector's productivity in delivering key services. To understand the productivity both over time and across space, we examine public bus service, which represents a standardized output for benchmarking the cost of local government service provision. There is a significant dispersion across transit agencies in the operating cost per bus mile with the highest being more than three times as high as the lowest among top 20 largest cities by population. We estimate the cost savings from privatization and explore the political economy of why privatization rates are lower in high cost unionized areas. Our analysis finds that the full privatization could result in cost savings of $5.7 billion in 2011 (30% of total operating expenses of bus services), and a welfare gain of at least half a billion dollars.

Keywords: Government Service, Efficiency, Privatization, Union

JEL Classification: D7, H7, J4

Suggested Citation

Jerch, Rhiannon and Kahn, Matthew E. and Li, Shanjun, Efficient Local Government Service Provision: The Role of Privatization and Public Sector Unions (March 8, 2016). USC-INET Research Paper No. 16-10. Available at SSRN: https://ssrn.com/abstract=2753705 or http://dx.doi.org/10.2139/ssrn.2753705

Rhiannon Jerch (Contact Author)

Cornell University - Dyson School of Applied Economics and Management ( email )

Ithaca, NY
United States

Matthew E. Kahn

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Shanjun Li

Cornell University - School of Applied Economics and Management ( email )

248 Warren Hall
Ithaca, NY 14853
United States

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