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The Efficiency of Public Sector Outsourcing Contracts: A Literature Review
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. After articulating the differences between outsourcing and privatization, 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. While the nature of the risk-incentive trade-off is well-known in the contract theory literature, some new empirical work has explored the application of this framework to outsourcing in order to understand the impact of the risk premium on outsourcing outcomes.
... It is therefore interesting to discover what the actual sources of cost savings in outsourcing undertakings are. For example, Jensen and Stonecash (2004) argued that the substitution of capital for labor, more efficient work practices, economies of scale, innovations, labor shedding, and increased working intensity have been considered sources of cost savings. Some services in the public sector are better candidates for outsourcing than others. ...
... Complexity is significant in drawing up a contract. This is essential because a contract plays an important role in determining the success of outsourcing arrangements (Jensen & Stonecash, 2004). When characteristics of the operation to be outsourced cannot be accurately defined, buyers and sellers are unable to clearly and completely define exchange terms (T. ...
... Moreover, the outsourcing of operations forms new stakeholder interfaces and changes the practical working routines within an organization. Outsourcing also makes changes to the incentive structures of personnel within organizations (see Jensen & Stonecash, 2004. Adaptation to changes requires the adoption of new types of thinking and working methods, as well as some flexibility in people's attitudes. ...
This article discusses the outsourcing of water utility operations and the prerequisites for successful partnerships between water utilities and external service providers. A questionnaire survey in Finland indicated that the outsourcing of various water utility operations will increase in the future. This trend includes great opportunities to utilize the best features of external service providers and efficiently develop the water services sector. However, the outsourcing also includes risks because there is a lack of trust between water utilities and private companies. Therefore, “hard,” rigid contracts are preferred to reduce the uncertainty in outsourcing such undertakings. In uncertain conditions, this approach may not be an effective and fruitful development path in the long term. If relationships are more trust based, uncertainty can actually strengthen these relationships. Thus, more attention should be paid to building trust instead of intensively attempting to reduce uncertainty.
... There is a growing interest in public sector outsourcing (Jensen and Stonecash, 2004), however little is done when the contractor is a non-profit organization (O'Reagan and Oster;Millstein, O'Reagan and Oster;. One of the services for which governments are using a make-or-buy strategy worldwide is represented by the international aid delivery projects. ...
... As expected, the make-or-buy decision has been analyzed by using this new theoretical stream. Two examples are Hart et al. (1996) studied the prison privatization in the United States of America; and Jensen and Stonecash (2004) developed a literature review about the efficiency of public sector outsourcing contracts. ...
... As Williamson (1985) said "increasing uncertainty makes it more imperative to organize transactions within governance structures that have the capacity to "work things out". Jensen P. and Stonecash R. (2004) proposed that in the absence of uncertainty, the principal is able to observe whether the agent dedicated the desire effort level by observing the output generated -there is a perfect correlation between output and effort. However, under high uncertainty levels, the principal is not able to distinguish between the effects of the agent's effort and random effects output, so the agent may act opportunistically. ...
This paper seeks to answer the question of which international development projects are outsourced from the public bureaucracies when the contractor is a non-profit organization (NGO). The transaction cost economics framework is used to analyze the reasons underlying the outsourcing decision by isolating the transactional characteristics. The make-or-buy decisions made by the public agency in Spain for the international aid delivery projects during five years are analyzed. The results achieved shows that the international aid delivery projects developed as government subsidies present light formulation reports and more relevant contingencies than those developed through an NGO. This fact could make us suspect that the government subsidies are used to developed international aid delivery projects involving higher levels of complexity, uncertainty and asset specificity. Resumen Este trabajo trata de responder a la pregunta referente a qué proyectos de cooperación al desarrollo son externalizados por el ente público a través una organización no gubernamental para el desarrollo (ONGD). Se emplea el marco teórico de la teoría de costes de transacción, y en concreto las características transaccionales para analizar las razones que fundamentan la externalización. Las decisiones tomadas por la Agencia española de Cooperación al Desarrollo durante un periodo de cinco años son analizadas. Los resultados obtenidos muestran que los proyectos de cooperación al desarrollo ejecutados como Subvenciones de Estado presentan formulaciones más difusas y contingencias de mayor importancia que aquellos ejecutados mediante subvenciones a ONGD lo cual puede implicar mayores niveles de complejidad, incertidumbre y especificidad en sus activos. Palabras Clave: Externalización, Teoría de costes de transacción, Organizaciones no gubernamentales para el desarrollo.
... Problem topicality. The critics of outsourcing contracts state the use of outside providers' services does not ensure high service quality and low costs (Pollitt, Bouckaert, 2000) while the opponents are of the opinion that any opportunity to reduce costs is a positive phenomenon, and that making of outsourcing contracts in public sector is a powerful political measure to reduce governmental costs and to improve institutional activities, although there is a risk that the quality of the provided services can decrease (Jensen, Stonecash, 2004;Moschuris, Kondylis, 2006;Rajabzadehet al., 2008;Alonso et al. 2013, Antuchevicieneet al., 2013. Since before making a contract, public procurement conditions are announced, companies -potential service providers -compete among themselves as they do under the conditions of capital market, and they are comparatively free from political interference in their activities. ...
... Scientific research on outsourcing contracts in public sector emphasize competition and ownership as the key factors that determine the efficiency of outsourcing contracts in public sector (Abdul-Aziz, Ali, 2004;Elinder, Jordahl, 2013). Other studies highlight the importance of such factors as incentives, risk and the project (Jensen, Stonecash, 2004;Besley, Ghatak, 2003;Burgess, Ratto, 2003;Hart, 2003). ...
Theoretical literature defines service transfer from public to private sector as an outsourcing contract (Besley, Ghatak, 2003; Burgess, Ratto, 2003; Hart, 2003; Kettl, 2000, etc.). Although outsourcing in public and private sectors was analysed rather sufficiently, the criterions that determine making of outsourcing contracts in both sectors have hardly been analysed in complex. That is why the aim of the article is to identify the main criterions that determine making of outsourcing contracts in public and private sectors.
... A number of theoretical and empirical studies have analysed the costs and benefits associated with the contracting out of government activities. As Jensen and Stonecash (2004) explain in their own literature review on this issue, most previous empirical studies of contracting out have attempted to measure the cost savings achieved through privatisation, as this was the focus of policy debate in the 1980s and 1990s. Relatively few studies have addressed the ability of contracting arrangements to ensure the delivery of desired 'quality' outcomes, 4 or the costs of achieving these outcomes via contracting arrangements. ...
... LE IN PRESS 4 A notable exception is Domberger and Jensen (1997), which explored the ability of a public authority to ensure adequate investments in vehicle maintenance in its contractual arrangements for the provision of refuse collection services. sphere of expertise, it may be unable to effectively design and negotiate desired contract outcomes. Jensen and Stonecash (2004) note additionally that the presence of uncertainty about desired outcomes is likely to result in higher tendered prices and/or an unwillingness to tender for projects. In Globerman and Vining's (1996), contestability as a deterrent to opportunistic behaviour by contractors. It also creates an incentive for contractors to submit tender b ...
This paper explores the likely efficacy of government agencies using their contracting relationships with
private firms to affect training outcomes in the construction industry. Specifically, it reports on the
results of a study of two training policies of theWestern Australian government. Empirical data is drawn
from the government’s Tender Registration System between 1997 and 2006. The main finding of the
quantitative analysis is that in the absence of strong industry commitment to policy objectives, the
contracting approach is likely to result in high levels of avoidance activity and generate very few
benefits. The results of a qualitative investigation also support these findings.
... Less has been done in relation to public sector organisations, where studies have discussed the cost efficiency and political expediency of outsourcing public services (e.g. Elinder & Jordahl, 2013;Grimshaw et al., 2002;Jensen & Stonecash, 2004), rather than how complementarities between activities influence the decision to outsource. Second, the studies of public services outsourcing usually focus on generic services, some of which may be knowledge-intensive (Avery, 2000;Young, 2005), but they do not focus specifically on the outsourcing of knowledge transfer management functions on the part of research performers. ...
While public research organisations (PROs) are increasingly expected to actively transfer knowledge to business, government and wider society, limited research exists about how they manage this important function. Particularly, we do not know under what conditions it is more effective for PRO to vertically integrate knowledge transfer management, or to outsource it to specialist providers. Extending the theory of firm boundaries to PROs, we argue that this choice is influenced by two types of complementarity between research and knowledge transfer: intrinsic complementarity (occurring when the knowledge transfer process requires unique tacit knowledge) and strategic complementarity (occurring when the nature of the knowledge recipients matters to the PRO). By exploiting a unique 6 years panel dataset of 33 PROs in the United Kingdom, we confirm that higher degrees of both types of complementarity are associated with greater likelihood to vertically integrate knowledge transfer management, and that these effects are independent of economies of scale and sector specificities.
... The four main support activities are Operations, Human Resource, Accounts & Finance and Public Relations. A couple of other support activities need to be performed by organizations which are separated from the Judiciary altogether; 1) Information Technology Support & Contact Centre (Outsourced) to ensure efficiency (Jensen & Stonecash, 2004). 2) Quality Assurance and Performance Management (Separate and Independent Organization) in order to ensure disinterest (Hoecht, 2006). ...
The structure of Indian Judiciary is very similar to the common law British structure and it was designed to be exploitative in nature. It being a power institution that constitutes a part of the modern state, Indian Judiciary not only exercises authority over all of India it is also at the same time a democratic institution. The structure of the colonial euro-centric institutions is such that the locus and focus of responsibility can never be realised at the same time and at the same place. This naturally creates the paradox in institutional responsibility which is a natural consequence of irrational bureaucratic structure within the institution of judiciary. The first half of this paper starts critically reviewing the problems facing the Judiciary in India from the point of view of its euro-centric structure and the various malaise that this irrational structure results into. In the second half the paper reviews and recommends the application of New maanagerial philosophies to the structural aspects of Indian Judiciary with the aim of structurally rationalising it.
... However, similar to the results of this study, there are various examples of the success of outsourcing of public services [13][14][15][16][17][18]57]. Jensen and Stonecash [58] conducted a literature study on these various cases and pointed out that contract and efficiency are related. In this study, three types of contracts for the operation of public libraries in Korea were presented, and the effectiveness of these was analyzed. ...
This study investigates the difference in service efficiency based on establishing entity and outsourcing in 847 public libraries in Korea. The public libraries were categorized into three types based on establishing entity and outsourcing, where Type 1 libraries are those established and directly managed by the Office of Education under the central government, Type 2 libraries are established and directly managed by local governments, and Type 3 libraries are established by local governments and their operations are outsourced. Each library type was analyzed and compared using data envelopment analysis (DEA), and results found that public libraries established by local governments are more efficient than those established by the central government, while outsourcing operations improved the efficiency of public libraries. Further analysis of the projection point and excess quantity of input showed that the main cause of inefficiency for Type 1 libraries is the library area, and for Types 2 and 3, the number of periodicals. This study provides guidelines for the sustainable performance of public library services based on the factors of foundation and operational patterns.
... Conforme destacado por Jensen e Stonecash (2004), os determinantes do sucesso da terceirização ainda não são conhecidos no setor público. Para muitos críticos, a terceirização não passa de mera intermediação de mão de obra. ...
A terceirização é uma prática que se intensificou no setor público a partir da reforma do Estado. Diante da literatura percebeu-se que valores públicos podem ser perdidos quando a responsabilidade pela execução é transferida do empregador governo para uma empresa privada. Diante dessa problemática, este artigo tem como objetivo analisar editais, contratos e a prestação de serviços terceirizados em uma instituição pública federal localizada em Minas Gerais, investigando suas características quanto à aplicação dos princípios da administração pública (legalidade, impessoalidade, moralidade, publicidade e eficiência). Para atingir os objetivos da pesquisa foi realizado um estudo de caso. Utilizou-se dados primários e secundários, os quais foram submetidas à Análise de Conteúdo. Os resultados evidenciam que os valores públicos são perdidos e negligenciados.
... However, leasing contracts have traditionally been perceived as a financing option only. When the government wants to maintain public ownership of essential assets and transfers the responsibility for managing the assets to the private sector, it is called public sector outsourcing [11]. ...
... Most Western countries are, to varying degrees, battling with a situation where some kind of reform is needed to continue producing high-quality social services that are affordable as well as attainable in the future (Blank, 2000;Blomqvist, 2004;Lin, 2009;Van Slyke, 2003). Both outsourcing and privatization of traditionally publicly provided services (Jensen and Stonecash, 2004) have been seen as a solution to the growing gap between available resources and pressing needs (Rissanen, Hujala, and Helisten, 2010). New forms of enterprises as well as public-private-partnerships are looked upon with heightened interest, and a better and more creative interplay between public and private actors is hoped for (Forrer et al., 2010;Neck, Brush, and Allen, 2009;McGahan, Zelner, and Barney, 2013) to solve challenges related to, among others, the environment, global economic turmoil and instability, heavily aging populations and other rapid changes. ...
... However, Government expenditure reduces economic growth by generating higher levels of taxes, and thus decreases the share of private sector. In more general terms, the use of government resources is altered to the public sector from the private sector, and most economists argue that the private sector is more efficient allocation of resources than the public sector (e.g., Jensen & Stonecash, 2004;Cooray, 2009;Nurudeen & Usman, 2010). ...
Economic growth in a country can be attributed to many variables, both positive and negative. Raising the level of human capital, openness and investment are examples of factors typically considered to have a positive impact on economic progress, while corruption is one of the factors that are often seen as detrimental to economic growth. The purpose of this study is to analyse whether the levels of perceived corruption in a cross-section of countries have affected their economic growth rates over the years 2003-2010. The study is conducted with a regression on a sample of 14 countries and eight variables for the time period in question. The models are constructed on the basis of the endogenous growth theory. Results using economic freedom index (EFI) shows that corruption has a negative impact of economic growth in the countries in question.
... Most studies investigate efficiency and costs savings from a very narrow perspective. Literature reviews do likewise (Jensen and Stonecash, 2004). ...
In June 2006 North Tyneside Council published an edited version of a Business Transformation Plan prepared by management consultants KPMG in conjunction with Council officers. Local government trade unions in North Tyneside (including teacher unions) commissioned this report from the European Services Strategy Unit to assess the Council’s transformation plan and to provide an evidence base to support their opposition to this plan.
... According to [17] and [40] IT outsourcing is a form of privatization that generally refers to a higher education institution's decision to contract with an external organization to provide an IT traditional campus function or service. Yet, authors from [25] claimed that outsourcing is very Nor Aziati Abdul Hamid is a lecturer in the Technology Management Department at Faculty of Technology Management in University Tun Hussein Onn Malaysia, Batu Pahat, Johor, Malaysia (The author can be reached by phone: +6-074538128; fax: +6-074541245; e-mail: aziati@uthm.edu.my). Rajeev Suberamany is an undergraduate student in the Technology Management Department at Faculty of Technology Management in University Tun Hussein Onn Malaysia, Batu Pahat, Johor, Malaysia (email:ralvinz_rr@yahoo.com). ...
Higher education institutions are increasingly opting to outsourcing methods in order to sustain themselves and this creates a gap of literature in terms of how they perceive the relationship. This research paper attempts to identify the behavioral and psychological factors that exist in the engagement thus providing valuable information to practicing and potential clients, and vendors. The determinants were gathered from previous literatures and analyzed to formulate the factors. This study adopts the case study and survey approaches in which interviews and questionnaires are deployed on employees of IT-related department in a Malaysian higher education institution.
... Most Western countries are, to varying degrees, battling with a situation where some kind of reform is needed to continue producing high-quality social services that are affordable as well as attainable in the future (Blank, 2000;Blomqvist, 2004;Lin, 2009;Van Slyke, 2003). Both outsourcing and privatization of traditionally publicly provided services ( Jensen and Stonecash, 2004) have been seen as a solution to the growing gap between available resources and pressing needs (Rissanen, Hujala, and Helisten, 2010). New forms of enterprises as well as public-private-partnerships are looked upon with heightened interest, and a better and more creative interplay between public and private actors is hoped for ( Forrer et al., 2010;Neck, Brush, and Allen, 2009;McGahan, Zelner, and Barney, 2013) to solve challenges related to, among others, the environment, global economic turmoil and instability, heavily aging populations and other rapid changes. ...
We investigate the complex dynamics between social service entrepreneurs and social sector managers through the lens of network metaphor, utilizing our data on social service entrepreneurs’ experiences of cooperation with municipalities. We examine what kinds of dependencies exist in the entrepreneur–municipality relationships and what kind of consequences these dependencies have on social service businesses run by entrepreneurs. Basing on the social service entrepreneurs experience, our findings suggest that while the cooperation with the municipality represents a prerequisite for success, their business represent only one alternative for the renewal of social service structures from the point of view of municipalities. In addition, the existence of legally enforced supervisory duties incorporates a considerable amount of power that influences areas of the entrepreneur–municipality relationships and interaction other than just those defined by the supervisory and regulatory rights. Keywords: social service enterprise, public-private-partnerships, social service entrepreneurship, cooperation, network metaphors.
... Dans ce contexte, le recours à des contractants externes ou à l'externalisation dans le secteur public (par le biais d'entreprises privées ou d'autres organisations du secteur public) est généralement considéré comme une stratégie appropriée pour faire face aux questions transversales et améliorer le rendement (Metcalfe et Richards, 1990 ; Kagan et Neville, 1993 ; Milbourne et al., 2003). De fait, les collaborations entre organismes publics ont une influence positive sur le corporatisme et la productivité du personnel (Bilodeau et al. 2007) et peuvent aussi réduire les coûts (Jensen et Stonecash, 2004 ; Jensen, 2005) ; elles sont, par conséquent, positivement liées à l'efficience et à l'efficacité (Andrews et Entwistle, 2010). De plus, la majorité des tâches nécessaires pour constituer et maintenir un système cadastral peuvent être effectuées par des entités ou des agences indépendantes sans pur autant compromettre la sécurité des dossiers fonciers. ...
Efficiency assessment of real estate cadastral offices using DEA
This article describes an approach to measuring efficiency of a set of units operating in an administrative public service context, namely real estate cadastral offices, a venue which has not been analysed previously in the reported literature. This study was madepossible thanks to the dataset provided by the Directorate General of Real Estate Cadastral Assessment and includes relevant information on regional cadastral offices in Spain over the time period 2000 to 2005. Data Envelopment Analysis and Malmquist indices were used to estimate the efficiency levels of these units. The results of these analyses revealed the existence of significant differences between average efficiency levels and the identification of efficient units throughout the period under consideration, although it is possible to detect a substantial improvement in technical efficiency for the last two years of the data collection period, when the new regulation about real estate evaluation came into effect. Likewise, the estimation of a second stage model based on bootstrap techniques highlights the importance of collaborating with other public sector agents to enhance efficiency levels.
Points for practitioners:
This article provides an empirical analysis of units providing cadastral services in Spain using Data Envelopment Analysis. This technique is an excellent tool for professionals working in public management and administration since it is easy to implement and allows identifying the best performers among producers operating in a field, which can be considered as benchmarks for other units searching to improve their results. Ourresults confirm that the units collaborating with other public sector agents (mainly councils and notaries) accomplish enhanced performances in terms of efficiency. This evidence can be useful for policy-makers interested in reducing costs and improving the organization of administrative units.
... During the period of economic recession, cost saving becomes the highest priority of the organisations operating in any sector. Advocates of outsourcing are of the opinion that any opportunity to reduce costs is a positive phenomenon, and that making of outsourcing contracts in public sector is a powerful political measure to reduce costs and to improve institutional activities (Jensen, Stonecash 2004;Moschuris, Kondylis 2006;Rajabzadeh et al. 2008;Alonso et al. 2013;Antucheviciene et al. 2013). ...
Public institutions not much differ from big corporations in which both cost saving and efficiency are the main aims that encourage the managers of public institutions to consider the model of outsourcing. The object of this article is cost reduction in public health care sector. The aim of the article is to identify the factors that determine the choice of outsourcing as a measure to reduce costs in public health care sector. To fulfil this aim, the following objectives have been raised: 1) to analyse the factors that determine the choice of outsourcing in public health care sector; 2) to present the methodology of the research; 3) applying the method of expert evaluation, to identify the outsourcing factors that determine cost reduction in Lithuanian public health care sector.
... ). Por exemplo, desde 1988, as autoridades locais na Inglaterra, Escócia e País de Gales foram obrigadas a colocar certas actividades específicas (recolha de lixo e limpeza de edifícios) a concurso público. Verificou-se, assim, um aumento da contratação de serviços no sector privado (e.g.Reeves, E. & Barrow, M. 2000;Quiggin, J. 2002) 2.3.1 riscos da subcontratação de serviçosApesar das enumeras vantagens da subcontratação na Administração Pública também se apontam variadíssimas desvantagens(Jensen, P. & Stonecash, R. 2004). Assim, é necessário ter em atenção os riscos dessa mesma Sensibilidade do Cidadão. ...
... See the definitions on page iv for "PPI Unit" and in section 5.2 for "in-depth guidance" and "routine guidance." 10 See the discussion inJensen and Stonecash (2004). ...
... Most of the TG 8,1 literature on IT outsourcing has focused on the private sector (Koh et al., 2004;Lacity and Willcocks, 1998;Levina and Ross, 2003;Quélin and Duhamel, 2003). Comparatively, only few studies analyzed outsourcing in public administrations (Burnes and Anastasiadis, 2003;Chen and Gant, 2001;Janssen and Joha, 2006;Jensen and Stonecash, 2004;Kakabadse and Kakabadse, 2001;Kanungo et al., 2001;Lee and Kim, 2007;Marco-Simó et al., 2007;Navarrete and Pick, 2002;Ward and Mitchell, 2004). ...
Purpose
– The purpose of this article is to propose a theoretical model explaining information technology outsourcing performance in the public sector as well as a set of empirically testable propositions to improve the understanding of key determinants of success.
Design/methodology/approach
– Based on Fountain ' s technology enactment framework, the authors integrated inter-organizational factors, such as trust, knowledge sharing, and quality of outsourcing interfaces, in the model and added organizational culture alignment between service providers and public administration to enhance Fountain ' s original framework.
Findings
– The authors proposed 17 empirically testable propositions to establish the relationships between key variables in IT outsourcing projects in the public sector.
Research limitations/implications
– The proposed model provides guidance for future research aimed at advancing knowledge of IT outsourcing.
Originality/value
– The contribution lies in the development of specific variables, such as trust, knowledge, and organizational culture, which are related to building an outsourcing relationship and are used as determinants of the quality of organizational interfaces between public bureaucracies and IT outsourcing providers.
... This is likely to reflect in large part the relatively short history of contracting out p ublic works. As Jensen and Stonecash (2004) expl ain, most previous empirical studies of contracting out have attempted to measure the cost savings achieved through privatization, as this was the focus of policy debate in the 1980s and 1990s . Relatively few studies have addressed the ability of contracti ng arrangements to ensure the delivery of desired 'quality' outcomes 2 , or the costs of achieving these outcomes via contracting arrangements . ...
... In their review of engineering asset management and maintenance Herder and Lukszo (2006, 119) argue that " new and more intelligent methods are needed … that are able to handle multi-actor, multi-level, multi-objective and dynamic complexity of infrastructural operation " . Principal-agent theory has been held to provide significant explanatory power for exploring government contracting, particularly in circumstances which involve fairly straight-forward, and easily measured arrangements between government and contracted firms (Jensen and Stonecash 2004). Given the difficulty for principal-agent theory in dealing with a multiplicity of parties involved in modern procurement arrangements (Eisner, Worsham and Ringquist 1996) such as that which exists with engineering asset management (Herder and Verwater-Lukso 2006), alternative theories are needed which can advance ways of understanding the interactions between the actors. ...
The Australian Procurement and Construction Council (APCC) (2001) noted that Australian government assets, such as buildings, roads, rail and utilities, are valued at around $371billion and approximately $18 billion is spent annually by state, territory and commonwealth governments on acquiring and maintaining these assets. Ferguson (2007) estimates that over $200 billion will be spent on engineering assets such as transport (roads and rail), ports, utilities (water and electricity) and broadband in the next few years in Australia. Such engineering assets are highly complex arrangements which comprise social and technical systems, are capital intensive, and typically last for significant lengths of time (Herder and Verwater-Lukszo 2006). Indeed it is considered that the optimal functioning of engineering assets such as "transportation, energy, information and communication, and water is vital for the economy and society" (Herder and Verwater-Lukszo 2006, 119). Engineering assets are thus significant in both economic and social terms (APCC 2001).
Recognising the importance of engineering assets to society, many jurisdictions in Australia have developed policies on the strategic management of engineering assets (e.g. Queensland Treasury 2003, Western Australia Department of Treasury and Finance 2005) particularly in order to guide the procurement of assets, asset management and maintenance, which is now typically achieved through private firms. The APCC (2001) has argued that the effective and efficient management of these assets is in the best interest of government, business and society (APCC 2001). As an emerging field of endeavour, engineering asset management seeks to optimise the performance of these engineering assets – particularly the whole-of-life management of risks and expenditures for the purpose of achieving organisational goals (British Standards 2003). Given the relative newness of the field, much research is still needed in order to identify the optimal ways of procuring engineering asset management and maintenance from the private sector by government (Lædre, Austeng, Haugen and Kaklegg 2006).
Procuring engineering asset management and maintenance is a critical arena in which to conduct research due to the size of expenditure involved in acquiring and maintaining these assets (APCC 2001), the typical longevity of the assets, and the significant risk posed to society if these assets were to fail (Herder and Verwater-Lukso 2006). This paper argues that a richer understanding of the procurement of engineering asset management and maintenance services can be achieved by using perspectives from complex adaptive systems theory. The following sections outline the administrative challenges faced by governments as they seek to arrange for the management and maintenance of these assets, as these arrangements are of central interest to this research project. Firstly, the complex public policy issues which have arisen due to new systems of government in western democracies will be outlined, together with drawing out the implications of these arrangements for engineering asset management. Theoretical perspectives which have been deployed to explore this complexity will then be surveyed, and the utility of complex adaptive systems (CAS) theory to investigate the procurement of engineering asset management will be advanced.
... This is likely to reflect in large part the relatively short history of contractingout public works. As Jensen and Stonecash (2004) explain, most previous empirical studies of contracting-out have attempted to measure the cost savings achieved through privatisation, as this was the focus of policy debate in the 1980s and 1990s. Relatively few studies have addressed the ability of contracting arrangements to ensure the delivery of desired 'quality' outcomes 7 , or the costs of achieving these outcomes through contracting arrangements. ...
... Private provision means service production by companies, cooperatives, foundations, consumer associations and other non-governmental organisations. Most meta-studies evaluating SCG services acknowledge that privatisation increases productivity, although they often mention that the effect is stronger in the short than in the long run and that competition among providers is a much stronger drive than private provision itself (e.g. for technical services Jensen and Stonecash, 2004). The productivity gains from private provision are likely to root in more flexible production processes. ...
This paper presents a new set of institutional indicators that assess how sub-central governments harness market mechanisms such as tendering, outsourcing, user choice and competition, user fees and output-related funding when providing public services. Services put under scrutiny comprise primary, secondary and tertiary education, hospital care, childcare and elderly care, public transport, and waste collection. Results indicate that governments are often reluctant to apply market mechanisms when providing public services. “Technical” services such as transport or waste collection are more open to market mechanisms than “social” services like education or health care. Regulatory innovations such as tendering, competition or user choice are more advanced than financial innovations like user fees or output-related funding for service providers.
Le rôle des mécanismes du marché dans les services publics
Ce document présent un nouvel ensemble d’indicateurs institutionnels qui évaluent comment les administrations infranationales en tant que prestataires de services publics font appel aux mécanismes du marché comme les appels d’offres, la sous-traitance, le choix des usagers, la concurrence, les redevances et le financement lié au résultat. Les services examinés ici comprennent l’éducation primaire, secondaire et tertiaire, les soins hospitaliers, les soins à la petite enfance et aux personnes âgées, les transports publics et la collecte des déchets. Les résultats montrent que les administrations publiques sont souvent réticentes à appliquer les mécanismes du marché. Les services « techniques » tels que les transports ou la collecte des déchets sont plus ouverts aux mécanismes du marché que les services « sociaux » tels que l’éducation ou les soins de santé. Les innovations réglementaires comme les appels d’offre, la concurrence ou le choix des usagers sont plus nombreuses que les innovations financières comme les red
Iran is a country with numerous traffic accidents, offenses, and disruptions. According to the deterrence theory, increased detection of traffic offenses would decrease violations. Detection of traffic offenses is insufficient in Iran due to the limited operational capacity of the police. Reducing traffic violations would reduce accidents, disorders, and socio-economic costs. In this paper, a scheme for detecting and reporting speeding and parking violations to infringement processing through a crowdsourcing platform is proposed as a solution considering Iran’s economic and social context. Two scenarios for detecting and reporting speeding and parking violations were considered: public reporting and private sector reporting. Public acceptance is a potential challenge for the implementation of the scenarios. Therefore, an online survey with 548 samples in Iran was conducted to identify the challenges. A bivariate ordered probit model was developed to identify the variables that influence the level of public acceptance for each of the two scenarios of the proposed scheme. Several factors contributing to public acceptance were found, including privacy concerns, penalties, traffic police performance and actions, and the private sector’s past performance. Based on the public acceptance of the proposed scheme, the results of this study recommend that transportation policymakers implement it based on monitoring feedback on implementation in three phases, including detecting violations on public transit and sending a warning message to the violator, issuing tickets based on the private sector’s reporting, and sending warning messages based on public reporting.
The goal – of the paper is to analyze the opportunities and risks of outsourcing in the implementation of administrative and managerial processes by local authorities of Ukraine. The analysis includes a set of guidelines for improving outsourcing at the local governmental level. Research methodology – in the paper, an analysis of regulatory documents, reports of the Association of Ukrainian Cities, the outcomes of projects for the implementation of outsourcing in local governments, and an expert survey were used. Score/results – the problems in organizing outsourcing in local governments of Ukraine are identified. The recommendations for solving those problems are developed. Originality/value – the paper is done by the authors independently without any help and assistance of others. The paper provides links to researches, as well as links to legislation. The nature of the paper is a review report.
https://www.intechopen.com/books/positive-and-negative-aspects-of-outsourcing
Outsourcing has been seen as a phenomenon allowing competitive advantages for organizations, but some studies do not include the causes and consequences of this particular strategy. Consequently, the objective of this book is to fill this gap by combining several studies from different perspectives. The various chapters presented here follow several approaches, which researchers explore in different contexts. This book intends, therefore, to add to the body of knowledge about outsourcing. Furthermore, it shows how the outsourcing strategy can stimulate organizations' development in various countries and regions worldwide.
Purpose
The purpose of this paper is to analyze the effect of delivering rescue services in remote areas, where there is little or no natural incentive to provide this service, taking the case of Estonia as an example.
Design/methodology/approach
The case study is based on secondary data obtained via analysis of legal acts, rescripts and strategic documents, as well as (applied) studies. In addition, the transcripts of ten half-structured interviews were analyzed, which were conducted with rescue services experts in December 2012. The benefits and risks pointed out in the literature are discussed against an example of providing rescue services in the remote areas of Estonia.
Findings
Outsourcing rescue services has led to cost effectiveness and thereby provides a better-quality service in densely populated areas. The main risks are yet to emerge. It is highly probable that the Estonian Rescue Board has to deal with the issues regarding the lack of control over service, which in turn is caused by the lack of skills and competence to manage the relationships and to design appropriate service-level agreements.
Research limitations/implications
Since the voluntary rescue service provision is rapidly evolving, there have not yet been many studies undertaken to describe the positive and negative aspects of its development. Therefore, the collected data have gaps and are open for discussion.
Practical implications
The introduction of an extensive network of voluntary fire and rescue service brigades is a paradigm shift in Estonia, where the rescue services have so far been provided publicly. Thus, it gives a guidance to other practitioners, on which aspects they should focus on, while planning a change in service provision/provider.
Originality/value
The novelty of this paper is to systematically analyze the benefits and risks occurred on a shift from public provision of rescue services to providing it in an extensive co-operation with voluntary rescuers.
Purpose
– The purpose of this paper is to use modeling and simulation to investigate the puzzling performance problems that plagued the project outsourcing in term of poor quality and delivery delay, and apply the appeal and power of system dynamics modeling as a managerial approach to improve learning and intervention in complex situations to South African context where little or no such attempt had been made.
Design/methodology/approach
– This work is based on exploratory use of system dynamics modeling to study a web of quality and productivity problems that plagued a company as a result of adopting outsourcing as a policy to bolster productivity and service delivery.
Findings
– A significant finding from this research is that outsourcing has the propensity to perpetuate any trend it dominantly generates as a result of strong positive feedback loops. It also made explicit the dynamic processes that lead to certain observations that have been made in conventional management literature about the effects of outsourcing.
Research limitations/implications
– The major limitation to this study is availability of information in form of certain operating data need for calibration thus imposing few aggregations on the model.
Originality/value
– The authors believe that this work has a degree of originality as it applies system dynamics modeling to public sector outsourcing which not being done before. It also made a significant finding by uncovering possible counteractive effect of outsourcing on internal staff.
The level of cyber attacks on organisations has increased tremendously in recent years. When such attacks occur, organisations need to assess the damage and loss from this crime. While large organisations have the mechanisms to determine such losses, SMEs lack such capability and often ignore the need to implement effective information security measures (Kyobe, 2008; Altbeker, 2000; Upfold and Sewry, 2005). Consequently, their risk exposure to cyber threats and the losses they incur from these attacks are often high (Ngo, Zhou, Chonka and Singh, 2009). However, the current legislative requirements, costly legal liabilities for non-compliance, and increasing pressure by stakeholders (e.g., lenders, business partners) on SMEs to comply with good practices suggest that SMEs cannot ignore security any longer. In order to ensure accountability and compliance with security requirements, it is imperative for SMEs to identify, account and report cyber incidents and losses resulting from cyber attacks. This study investigated the factors that inhibit SMEs from recognizing and measuring losses from cyber attacks in South Africa. A survey involving twenty organisations from different business sectors was conducted and the results indicate that victimisation, resulting from a lack of awareness of cyber-crime has the greatest influence on SMEs' ability to recognise and prepare losses from cyber attacks.
International agencies use two alternative modes of governance to deliver international aid projects: under bilateral agreements with recipient governments (in-house), or through incumbent NGOs. Through the lenses of institutional and transaction cost economics, this article examines 95 international aid projects delivered in Morocco and Ecuador by the Spanish international agency finding that those projects delivered “in-house” present different features than those projects outsourced through incumbent NGOs. Specifically, international aid projects delivered “in-house” involve important investments in specific assets, are much more complex, and can turn the public agency into a hostage of its own disbursement.
This paper contributes to the broad literature on public services contracting in two ways: We provide an empirical analysis of contracting decisions in the provision of welfare-to-work (WTW) services, and we explicitly model two forms of external provision of WTW services by municipalities.We estimate both the WTW-contracting decisions of Dutch municipalities and their impact on the performance, measured as the fraction of Social Assistance recipients. The two forms of external provision are (1) Contracting with other municipalities and/or (2) Contracting-out services to private providers.Our findings suggest that contracting decisions are predominantly driven by cost considerations, both for the decision to contract with other municipalities and the share of contracting out to private providers. Municipalities with low WTW budgets or facing budget constraints are more likely to contract with external parties – presumably this reduces their costs and the risk of future budget deficits. We do not find contracting decisions to affect the performance of municipalities, measured as the use, inflow or outflow out of the SA scheme. From this alone, however, we cannot conclude that both the three provision modes are equally cost-effective too, as external provision may be less costly.
Contracts represent a key device for governing and intermediating commerce. As such, a body of contract law which produces outcomes in accordance with the expectations of commercial actors is a key factor in determining the risk and thus costliness of doing business within a particular jurisdiction. Both commercial practice and the law of contract change over time. Examples of the former include the increasing recourse to outsourcing, alliances and partnering arrangements while a topical example of the latter represents the growing debate (in Australia) about the existence and role of good faith performance obligations in contract. Proponents of the latter doctrine have asserted that the growing reliance on relational commercial forms evident in contemporary business operations means a need for good faith norms within contract. Further, they assert that the commercial community expects and desires this norm shift. This paper describes evidence which provides a contrary view. In short, it is argued that managers place a high degree of value on contractual certainty and look warily at doctrines which would appear to subvert certainty in favor of other values
This paper proposes an approach to measure efficiency of a set of units operating in an administrative public service, namely real estate cadastral offices, which have not been analysed previously. This study has been made possible thanks to the database provided by the Directorate General of Real Estate Cadastral Assessment which includes information on the 52 local offices in Spain for the period between 2000 and 2005. Data Envelopment Analysis has been used to estimate the efficiency levels of these offices. Subsequently, a second stage model based on bootstrap techniques is applied in order to identify other potential factors (differences in management techniques, demographic and economic variables, etc.) that may affect the estimated efficiency measures.
The paper explores the efficacy of public agencies using their contracting relationships with private firms to affect training outcomes in the construction industry. It develops a theoretical perspective on this issue by extending a framework that was originally developed by Hart, Schleifer and Vishny (1997) to study privatisation. This paper shows how their framework can also be applied to situations where the provision of public works is already privatised and the government is attempting to regulate training outcomes via a contracting arrangement. An empirical study of two training policies of the Western Australian government complements this theoretical discussion. We report the results of an analysis of data drawn from the government’s Tender Registration System between 1997 & 2006. As such we use a unique and comprehensive resource to examine the possible effects of new training policies on an important segment of the construction ‘market’.
While the procurement of public works such as schools, bridges, train stations and roads is a well accepted
contract management role of government in most OECD countries, the management of the provision of
public art as part of such activities is not as well known. This paper provides an in depth analysis of the
specific case of public art embedded in public works procurement in Queensland. While confirming expected
benefits identified in the literature, such as economic benefits for artist, this case study extends our
understanding of the costs and benefits of managing public art projects through an extended analysis of the
views of various stakeholders in the procurement process.
Procuring engineering asset management is a critical activity of all types of government, with optimal approaches to procurement still in need of identification. This paper advances a novel approach of exploring the procurement of engineering assets across a number of dimensions: Project rules, organisational interaction rules
and complexity. The dimensions of project rules are held to include cost, quality and time. The dimensions of organisational interaction rules are held to be collaboration, competition and control. Complexity is seen as in the project itself, in the interaction between organisations or in the business environment. Taken together these
dimensions seem salient for any type of engineering asset, and provide a useful way of conceptualising procurement arrangements of these assets.
Government is a major client of infrastructure projects and can exert considerable influence on the industry sector through the government’s regulatory power and the sheer scale of procurement of public works currently underway in Australia at the moment. Government can also seek to satisfy a range of different interests in the delivery of infrastructure projects in order to achieve multi-outcome objectives of government. However, the best way of engaging with stakeholders in the planning and delivery of public works has yet to be resolved, and is the focus of this panel.
To explore the engagement of stakeholders within the planning and delivery of public works in Australia, this paper will examine a distinctive aspect of the delivery of infrastructure projects in Australia – public art. Specifically, the paper examines how an innovative policy for integrating the acquisition and creation of public art into public infrastructure projects in Western Australia can serve as a mechanism for understanding how to engage stakeholders in the planning and delivery of infrastructure projects in a democratic polity.
Public art in infrastructure projects in Western Australia is implemented through a Percent for Art policy. The Western Australian Percent for Art policy mandates a percentage of the funding for an infrastructure project be allocated to the development of public art. The public art works are typically integrated into the function or form of the infrastructure itself and have a practical as well as aesthetic purpose. An outcome of the Percent for Art policy is the requirement to engage stakeholders normally excluded from decision making in the procurement process, particularly the users and wider community associated with infrastructure projects.
Watermayer (2000) suggests that procurement linked to social objectives may produce positive economic benefits including acting as a stimulant to economic activity, improving competitiveness with other sectors, redressing regional disparity, promoting employment of those in disadvantaged employment groups, allowing environmental sustainability and developing markets for locally sourced labour and products. However, the mix of market and state-driven imperatives in contractual arrangements is not without problems. Potential difficulties identified by Watermayer (2000) include issues of overburdening administrative capacity of governments in procurement oversight, creating unfair competition, compromising value for money in projects, creating a situation in which the private sector is unable to deliver efficient and effective projects and exposing government to high level risk.
Based on qualitative case study research, this paper argues that the Percent for Art policy provides a mechanism that engages key stakeholders into decision making processes concerning infrastructure projects which would not occur without the policy being in place. The stakeholder engagement will be demonstrated to result in a number of unique outcomes that includes increased ownership of the asset, reduced vandalism, and enhanced function of the asset. The outcomes are largely a result of the way that the engagement occurs under the Percent for Art policy and how the policy practically influences the perceived legitimacy of the infrastructure project. This research project examines in detail these potential benefits and costs from the perspectives of a variety of stakeholders. This paper investigates public works procurement policies in Western Australia with the embedded social objectives of the provision of public art, particularly how such policies facilitate the engagement of a larger range of stakeholders than would otherwise be the case.
An overview of public art and percent for art from an economics perspective is undertaken in the next section which will provide a suitable foundation for a detailed analysis of the costs and benefits of this policy from the perspective of a variety of stakeholders.
The aim of the paper is to take a closer look from a transaction cost perspective at empirical findings on the changing role of the State as a guarantor of public services. In recent years, a number of economic and legal research efforts have been devoted to analyse under which conditions and for which public services specific organizational forms and institutional arrangements would be adequate. The empirical evidence referred to for the public services supports in principle central statements and hypotheses of transaction cost theory and leads to some important conclusions for empirical research and for policy recommendations. Copyright 2007 The Author Journal compilation © CIRIEC 2007.
The transaction cost analysis framework is integrated with prescriptions from the sales management literature to develop a model that indicates the role of salary in a sales compensation plan for industrial firms. The descriptive power of the model is examined by surveying compensation practices in 161 firms. The results indicate that the transaction cost framework is somewhat useful in describing the use of salary, but the framework does not consider some important aspects guiding salary versus incentive compensation decisions.
A conceptual challenge in exploring the role of trust in interorganizational exchange is translating an inherently individual-level concept-trust-to the organizational-level outcome of performance. We define interpersonal and interorganizational trust as distinct constructs and draw on theories of interorganizational relations to derive a model of exchange performance. Specifically, we investigate the role of trust in interfirm exchange at two levels of analysis and assess its effects on negotiation costs, conflict, and ultimately performance. Propositions were tested with data from a sample of 107 buyer-supplier interfirm relationships in the electrical equipment manufacturing industry using a structural equation model. The results indicate that interpersonal and interorganizational trust are related but distinct constructs, and play different roles in affecting negotiation processes and exchange performance. Further, the hypotheses linking trust to performance receive some support, although the precise nature of the link is somewhat different than initially proposed. Overall, the results show that trust in interorganizational exchange relations clearly matters.
During the last two decades economists have made much progress in understanding incentives, contracts and organizations. Yet, they constrained their attention to a very narrow and empirically questionable view of human motivation. The purpose of this paper is to show that this narrow view of human motivation may severely limit understanding the determinants and effects of incentives. Economists may fail to understand the levels and the changes in behaviour if they neglect motives like the desire to reciprocate or the desire to avoid social disapproval. We show that monetary incentives may backfire and reduce the performance of agents or their compliance with rules. In addition, these motives may generate very powerful incentives themselves.
The practice of contracting with private firms for the provision of public services is a very old one. For example, the transport of convicts to Australia was undertaken primarily by private contractors. However, the First Fleet was effectively a public venture, being under the direct control of Governor Philip, while the Second Fleet was controlled by the contractors, paid on a fixed rate per convict. As a result of the incentive to skimp on food and medical attention, around a quarter of the convicts in the Second Fleet died, and half were unfit for work when they arrived (Clark 1962), whereas the death rate for the First Fleet had been minimal. Subsequent tightening of contractual terms reduced death rates, but also increased costs.
This article analyzes the contracting out decision. It assumes that the decision to assign responsibility to local government for providing a particular service to the public has already been made, and that a rationale for making that decision has been articulated, usually in the form of a legislative mandate. Therefore, the issue that remains for local government is how best to effectuate this mandate. This article offers a critical evaluation of various approaches to analyzing the contracting out decision and provides a comprehensive framework for undertaking such analyses. Adherence to the framework requires an ambiguous, comprehensive statement of service goals followed by an economic cost-benefit evaluation that takes into account all direct costs, as well as indirect costs and social costs, in order to properly ascertain whether there is any advantage to contracting out as compared to performing the work in-house.
In the rush to privatization, we may neglect to question the premises of contracting out. First, private firms are not always a lower-cost option than public provision. Second, governmental decisions to contract depend on factors other than efficiency or cost reduction. These findings have implications for those who would contract out and those who would advocate increased use of contracting.
Are contracting reforms simply another management fad, with all the attendant rhetoric, or part of a more fundamental change delivering real results? This article concludes that contracting is an important reform with some critical benefits. As with any reform, however, we should recognize that as well as real potential financial gains, such reforms are also accompanied by other impacts and may be introduced as part of an ideology. This article establishes an evaluation framework to assist with the assessment of contracting experience, and a meta-analysis of empirical results is added to current knowledge of contracting. It is noted that with much of the knowledge on contracting effectiveness coming from assessments of garbage collection, maintenance, and cleaning services, direct translation of these notions to other service areas requires caution. Irrespective of any financial arguments though, contracting will continue to provide governments with a powerful lever to rescope public services.
The improper use of outsourcing is playing an important role in the continuing competitive decline of many Western firms. Western managers often view outsourcing as a defensive operational measure. The approach tends to be incremental. A whole series of incremental outsourcing decisions, taken individually, may make economic sense, but collectively they may also represent the surrender of the business's capability to compete. However, properly understood and managed as an overall part of strategy, outsourcing can aid competitiveness. This article, based on the authors' research with firms in North America, Europe, and Asia, discusses the manner in which the improper use of outsourcing can destroy the future of a business, and how the proper use of outsourcing can help build competitive advantage.
This article is a case study on the decision made by a local authority to contract- out school cleaning. This case study generates empirical findings, and is thus 'generalizable to theoretical propositions and not to populations or universes' (Yin, 1989, p21). It examines the making of the decision by Kent CC to contract- out school cleaning, and provides theoretical analysis on whether contracting- out of school cleaning reduced spending and whether it improved school cleaning. It argues that contracting-out reduced both spending on and standards of school cleaning. Moreover, it argues that contracting-out, and the consequent deterioration of the pay and conditions of employment, hurt workers already lowly paid (and in cleaning, lowly paid women in part-time work). Contracting- out is a cutback management strategy, and represents a form of cutting by privatising.
When the production behavior of industrial workers is examined by participant observation, it is seen that loafing on the job may not be the simple line of inactivity that some students of the subject have thought it. Close scrutiny of the particulars of "soldiering" in one piecework machine shop revealed that group adherence to a "bogey" was but one of several kinds of output restriction in the repertoire of machine operatives and that the work group was restricting production day in and day out.
This article analyzes the impact of outsourcing on the cost of maintenance and warehousing services in the New Zealand Army. Using a present-value framework, a costing methodology is developed that accounts for production costs, one-off costs (such as redundancy payments), and ongoing transaction costs associated with the outsourcing exercise. The authors find that expenditure levels have been reduced by between 24% and 37%. They also examine the sources of the observed savings and find that the majority of the savings have come from labor-saving technical change (23%) and labor shedding and reductions in inefficiency (58%), rather than cuts in the terms and conditions of employment (19%).
Faced with significant funding shortfalls for the construction, repair, maintenance, and operations of public infrastructure and delivery of public services, governments have searched for strategies to alleviate the funding shortages. Privatization has emerged as a promising alternative to traditional service‐delivery approaches. Contracting out the operations of public services, a subset of privatization, offers significant cost savings through competitive bidding for public services. A model that provides a method for making valid cost comparisons between the total costs of private and public performance of public services is presented. Special attention is given to the computation of the additional costs of contract performance. A case study involving solid waste collection and disposal is provided to demonstrate the use of the cost comparison model.
Queensland’s first private prison became operational in January 1990 under contract to Corrections Corporation of Australia. The major reason for privatization was to attempt to reduce alleged public sector bureaucratic complexities and to increase the efficiency of the delivery of corrective services. Compares two Queensland prisons of similar security status (one public, one private) in terms of the nature of the inmate population in an attempt to determine whether either has a cost advantage. Compares actual cost data and suggests reasons for the apparent differences.
Privatization of wastewater treatment facilities was encouraged by changes in the law and in the attitude of government officials during the early 1980s The idea was for localities to benefit from the efficiency gains expected when operations were transferred from municipal administration to a profit-making organization. However, significant differences between the ideal and reality often existed, particularly when contracts all but eliminated the profit motive.
Increased intensity of work has been frequently cited as part of the explanation for the productivity gains in British manufacturing industry during the 1980s. One of the main sources for this claim has been the PUL (Percentage Utilization of Labour) index, a measure of throughput at the point of production. Analysis of the underlying rationale for this measure leads to the conclusion that it is not a sound basis on which to assess workers' effort. This article examines the concept of effort in some detail and considers the validity of psychological and psychophysiological measures. Whichever measure is used, the evidence provides little support for the contention that workers' effort has been a significant factor in productivity increases.
This article brings new evidence to bear on the employment and human resource effects of competitive tendering and contracting. Drawing on a database of over two hundred workplace agreements, the article examines the impact of compulsory competitive tendering on employees’ pay and employment arrangements in the Australian local government sector. The findings are contextualised in the light of evidence on the outcomes of a similar contracting regime in Britain.
There has been considerable debate as to whether levels of worker effort rose in Britain during the 1980s. Case-study evidence from four organizations suggests that effort levels did indeed increase. The extent to which workers were aware of this was, however, moderated by the limited extent of the change, by the fact that it was sometimes accompanied by other changes, and by the recruitment of new workers. Future research should investigate in more detail the components of effort, workers' view on why effort levels have changed, and managerial interpretations.
This article reviews various approaches to analyzing the contracting-out decision and distills a set of cost/benefit considerations which each analysis must address in order to properly ascertain whether there is any advantage to contracting out as compared to performing the work in-house. The author describes an approach to analyzing the contracting-out decision that begins with an unambiguous, comprehensive statement of service goals to facilitate the measurement of outcomes and is followed by an examination of the other considerations on the cost side of the equation which are basic to the proper measurement of all direct costs, indirect costs, and social costs.
The Motivation Crowding Effect suggests that external intervention via monetary incentives or punishments may undermine, and under different identifiable conditions strengthen, intrinsic motivation. As of today, the theoretical possibility of motivation crowding has been the main subject of discussion among economists. This study demonstrates that the effect is also of empirical relevance. There exist a large number of studies, offering empirical evidence in support of the existence of crowding–out and crowding–in. The study is based on circumstantial evidence, laboratory studies by both psychologists and economists, as well as field research by econometric studies. The pieces of evidence presented refer to a wide variety of areas of the economy and society and have been collected for many different countries and periods of time. Crowding effects thus are an empirically relevant phenomenon, which can, in specific cases, even dominate the traditional relative price effect.
Since its publication in 2000, Public Management Reform has established itself as the standard text in the field, presenting a comparative analysis of recent changes in Public Management and Public Administration in a range of countries in Europe, North America, and Australasia. This completely rewritten second edition radically expands, develops, and updates the original. Two countries have been added to the comparison (making twelve countries in all) and a much fuller treatment has been provided of the European Commission (including a commentary on the recent reforms led by Vice-President Kinnock). Empirical data has been brought up to date, so as to cover many key developments of the last few years. The theoretical framework of the book has been further developed, including a challenging new interpretation of the trends in continental Europe, which are seen here as markedly different from the Anglo-American style 'New Public Management'. This second edition provides an unparalleled synthesis of developments in Australia, Belgium, Canada, Finland, France, Germany, Italy, the Netherlands, New Zealand, Sweden, the UK, the USA, and the European Commission. It is organized in an integrated format, within an overall theoretical framework that identifies the main pressures for, and trajectories of, change. It includes a multi-dimensional analysis of the results of reform, and a chapter reflecting on the dynamic relationship between management reform and politics. Extensive appendices provide an invaluable information resource for students.
More then just a textbook, A Theory of Incentives in Procurement and Regulation will guide economists' research on regulation for years to come. It makes a difficult and large literature of the new regulatory economics accessible to the average graduate student, while offering insights into the theoretical ideas and stratagems not available elsewhere. Based on their pathbreaking work in the application of principal-agent theory to questions of regulation, Laffont and Tirole develop a synthetic approach, with a particular, though not exclusive, focus on the regulation of natural monopolies such as military contractors, utility companies, and transportation authorities. The book's clear and logical organization begins with an introduction that summarizes regulatory practices, recounts the history of thought that led to the emergence of the new regulatory economics, sets up the basic structure of the model, and previews the economic questions tackled in the next seventeen chapters. The structure of the model developed in the introductory chapter remains the same throughout subsequent chapters, ensuring both stability and consistency. The concluding chapter discusses important areas for future work in regulatory economics. Each chapter opens with a discussion of the economic issues, an informal description of the applicable model, and an overview of the results and intuition. It then develops the formal analysis, including sufficient explanations for those with little training in information economics or game theory. Bibliographic notes provide a historical perspective of developments in the area and a description of complementary research. Detailed proofs are given of all major conclusions, making the book valuable as a source of modern research techniques. There is a large set of review problems at the end of the book.
In this paper several examples of government contracts with private firms are examined to see how experience conforms to a principal-agent model of cost minimization via competitive bidding and how important are the many qualifications to the model. Fifteen cases of local government contracting are examined.
The course of private contracting is not always smooth — as judged by the many contract disruptions observed and by the number of cities that believe they are no longer saving money by contracting and those which have resumed public production. It also seems to be the case, however, that competition generally reduces initial costs, that in many cases cost savings persist, that it is possible to stimulte competition, and that providing for continual interaction, as contrasted with simply monitoring performance, can prevent disruption.
A public service motivation (PSM) inclines employees to provide effort out of concern for the impact of that effort on a valued social service. Though deemed to be important in the literature on public administration, this motivation has not been formally considered by economists. When a PSM exists, this paper establishes conditions under which government bureaucracy can better obtain PSM motivated effort from employees than a standard profit maximizing firm. The model also provides an efficiency rationale for low-powered incentives in both bureaucracies and other organizations producing social services.
The paper draws on transaction cost and relational exchange theories to develop a model of the determinants of coordination costs in a collaborative contractual alliance. While some empirical research has examined certain dimensions of alliance performance, almost no studies have attempted to evaluate alliance performance by directly examining exchange costs. Data examining 393 original equipment manufacturer (OEM) supplier relationships that are governed by relational contracts found support for both the transaction cost and relational exchange perspectives. Asset specificity and environmental uncertainty directly increase coordination costs and, by altering the behavioral orientation of the alliance, relational norms lowered exchange costs.
The policy of competitive tendering and contracting for the provision of public services has been widely adopted by Australian governments in recent years. There is strong evidence that competitive tendering and contracting leads to cost savings for governments. However, there is little agreement as to whether these cost savings are primarily realised through improvements in operating efficiency, or by shifting cost burdens from governments to employees and service users.
This article seeks to put the “public” back in public values research by theorizing about the potential of direct citizen participation to assist with identifying and understanding public values. Specifically, the article explores eight participatory design elements and offers nine propositions about how those elements are likely to affect the ability of administrators to identify and understand public values with regard to a policy conflict. The article concludes with a brief discussion about potential directions for future research.
No Abstract. Peer Reviewed http://deepblue.lib.umich.edu/bitstream/2027.42/34845/1/1050_ftp.pdf
Empirical work on contracts typically regresses contract choice on observed principal and agent characteristics. If (i) some of these characteristics are unobserved or partially observed and (ii) there are incentives whereby particular types of agents end up contracting with particular types of principals, estimated coefficients on the observed characteristics may be misleading. We address this endogenous matching problem using a data set on agricultural contracts between landlords and tenants in early Renaissance Tuscany. Controlling for endogenous matching has an impact on parameters of interest, and tenants' risk aversion appears to have influenced contract choice.
It is commonly said that in 1926 General Motors was led to acquire its supplier of automobile bodies, Fisher Body, because Fisher Body held up General Motors. It is claimed that Fisher Body did this by locating its body plants far away from the General Motors assembly plants and by adapting inefficient methods of production, thus increasing both the cost of producing bodies and the profits of Fisher Body under its cost-plus contract. This tale is factually incorrect. What General Motors acquired in 1926 was the 40 percent of the shares of Fisher Body that it did not already own. Furthermore, Fisher Body did not locate its plants far away from the General Motors assembly plants. It is also most implausible, for many reasons, that the Fisher brothers would have used inefficient methods of production. There is no evidence that a holdup occurred. Copyright 2000 by the University of Chicago.