Explaining Local Outsourcing Decisions

Fiscal Conditions, Political Interests, and Service Outsourcing Decisions: The Case of Georgia Counties (PDF)

The question why a government chooses a specific service delivery tool to provide public service to its citizenry is a central intellectual inquiry in public administration. In the paper above we develop a two-step dynamic framework to explain the production and sector choices of public services, and apply the framework to analyze Georgia counties’ public service outsourcing decisions (2000-2006), focusing on the effects of fiscal condition and political interests.

We find that the production and sector choices are affected by different dimensions of fiscal conditions. Local governments with stronger revenue capacity are less likely to outsource their service production, because they have sufficient managerial capacity or scale of economy for in-house service delivery. When local governments contract, nevertheless, those with slack revenues are more likely to contract with private sector service vendors rather than other governments -- probably because they contract for the reason of service quality or diversification rather than efficiency.

Political interests matter as well. As is expected, a government in an ideologically more conservative community is more likely to outsource its services, and more likely to do so to private sector vendors. (The article will be out from Municipal Finance Journal. To cite it, please contact the authors for updated reference information.)

This entry was originally posted on Jerry Zhao's blog: Fiscal Issues and Geeky Stuff.

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