Working Paper No. 874

Outsourcing Public Services: Ownership, Competition, Quality and Contracting

Published: June 16, 2011Pages: 36Keywords: Outsourcing; Contracts; Tendering; Ownership; Competition; Quality JEL-codes: D23; H11; L33

Outsourcing Public Services: Ownership, Competition, Quality and Contracting Fredrik Andersson and Henrik Jordahl


We survey the literature on the effects of public sector outsourcing. Guided by theory, we systematically arrange services according to the type and magnitude of their contractibility problems. Taken as a whole, the empirical literature indicates that public sector outsourcing generally reduces costs without hurting quality. This is clearly the case for “perfectly contractible services” like garbage collection, but outsourcing often seems to work reasonably well also for some services with more difficult contracting problems, e.g. fire protection and prisons. Outsourcing seems to be more problematic for credence goods, with residential youth care as the prime example. In contrast to previous reviews, we conclude that ownership and competition appear to be about equally important for the consequences of public sector outsourcing.

Henrik Jordahl

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henrik.jordahl@ifn.se

Fredrik Andersson

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Fredrik.Andersson@nek...

Interdisciplinary European Studies

The European Union in a Changing World Order

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This book explores how the European Union responds to the ongoing challenges to the liberal international order. These challenges arise both within the EU itself and beyond its borders, and put into question the values of free trade and liberal democracy. 

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