Contracting for Government Services: Theory and Evidence from U.S. Cities

Journal of Industrial Economics, forthcoming
Contracting for Government Services: Theory and Evidence from U.S. Cities
Jonathan Levin
Categories
Abstract

Local governments can provide services with their own employees or by contracting with private or public sector providers. We develop a model of this “make-or-buy” choice that highlights the trade-off between productive efficiency and the costs of contract administration.

We construct a dataset of service provision choices by U.S. cities and identify a range of service and city characteristics as significant determinants of contracting decisions.

Our analysis suggests an important role for economic efficiency concerns, as well as politics, in contracting for government services. JEL codes: D23, D73, H11, L33

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Canary in the e-Commerce Coal Mine: Detecting and Predicting Poor Experiences Using Buyer-to-Seller Messages

Dimitriy Masterov, Uwe Mayer, Steve Tadelis

Reputation and feedback systems in online marketplaces are often biased, making it difficult to ascertain the quality of sellers. We use post-transaction, buyer-to-seller message traffic to detect signals of unsatisfactory transactions on eBay. We posit that a message sent after the item was paid for serves as a reliable indicator that the buyer may be unhappy with that purchase, particularly when the message included words associated with a negative experience. The fraction of a seller's message traffic that was negative predicts whether a buyer who transacts with this seller will stop purchasing on eBay, implying that platforms can use these messages as an additional signal of seller quality.