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Reducing Government Spending with Privatization Competitions: A Study of the Department of Defense Experience

Christopher M. Snyder1; Robert P. Trost1; R. Derek Trunkey2

1 George Washington University · 2 Center for Naval Analyses

The Review of Economics and Statistics 2001

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.

DOI
10.1162/003465301750160081
Volume
83 (1)
Pages
108-117
Language
en
Export
BibTeX
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