Contracting out by the public sector: theory, evidence, prospects

Abstract

Unlike privatization, contracting out (or simply contracting') does not generally involve the sale of publicly owned assets. Yet it has been widely used as a mechanism for reform of public-sector service provision. Contracting introduces ex-ante competition - competion for the market through competitive tendering. This article examines both the theory and evidence of contracting by the public sector. It considers the theoretical conditions, such as contractual incompleteness and the ownership of physical assets, which may impede efficient contracting. It also reviews the international evidence which suggests that savings in the order of 20% are achievable, without sacrificing the quality of ..