The Efficiency of Public Sector Outsourcing Contracts: A Literature Review

Melbourne Institute Working Paper No. 29/04

32 Pages Posted: 1 Dec 2004

See all articles by Paul H. Jensen

Paul H. Jensen

University of Melbourne - Melbourne Institute of Applied Economic and Social Research

Robin E. Stonecash

Australian Graduate School of Management

Date Written: November 2004

Abstract

Outsourcing the provision of traditionally publicly-provided services has become commonplace in most industrialized nations. Despite its prevalence, there still is no consensus in the academic literature on the magnitude (and determinants) of expected cost savings to the government, nor the sources of those savings. This article considers the arguments for (and against) outsourcing and then examines the empirical evidence pertaining to whether any observed savings occur and whether they persist over time. In addition, we examine the existing evidence for the "redistribution hypothesis" and the "quality-shading hypothesis", which critics have used to argue that outsourcing may result in lower government expenditure, but it does so by lowering wages and conditions for employees and lower quality services. Finally, we consider the impact of contract design on outsourcing outcomes.

Keywords: Outsourcing, risk, incentives, hold up, trust, contracts

Suggested Citation

Jensen, Paul H. and Stonecash, Robin, The Efficiency of Public Sector Outsourcing Contracts: A Literature Review (November 2004). Melbourne Institute Working Paper No. 29/04, Available at SSRN: https://ssrn.com/abstract=625461 or http://dx.doi.org/10.2139/ssrn.625461

Paul H. Jensen (Contact Author)

University of Melbourne - Melbourne Institute of Applied Economic and Social Research ( email )

Level 5, FBE Building, 111 Barry Street
Parkville, Victoria 3010
Australia

Robin Stonecash

Australian Graduate School of Management ( email )

Gate 11, Botany Street, Randwick
Sydney, NSW 2052
Australia

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