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Reducing Government Spending with Privatization Competitions: A Study of the Department of Defense Experience
Christopher M. Snyder, Robert P. Trost and R. Derek Trunkey
The Review of Economics and Statistics
Vol. 83, No. 1 (Feb., 2001), pp. 108-117
Published by: The MIT Press
Stable URL: http://www.jstor.org/stable/2646694
Page Count: 10
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In a privatization competition, private contractors bid against an in-house team to perform a governmental function that is currently performed by the in-house team. The Department of Defense initiated 3,500 privatization competitions from 1978 to 1994, generating estimated annual savings of $1.46 billion. We estimate a reduced-form model of the savings from these competitions that takes into account the premature cancellation of some competitions and the censoring of the in-house bid at current cost. The Department of Defense maintains a list of candidates for future privatization competitions. Using our model, we forecast annual savings of $5.74 billion if privatization competitions were completed for all functions on this list.
The Review of Economics and Statistics © 2001 The MIT Press