 Public Sector Outsourcing as an Exchange OptionDavid Johnstone Abacus, 2002, vol. 38, issue 2, 153-176 Abstract: The outsourcing of government activities is justified primarily by expected cost savings. In the formal process of determining whether there are potential savings from contracting out, public sector agencies in Australia are required by published government guidelines to measure the relevant costs of in‐house activities and to compare these with external bids. Similar and in technical respects essentially identical requirements exist in Great Britain. The cost comparison methodology advocated in these various publications is deficient in that it makes no allowance for the financial value of the option to contract out. Like other options, the option to contract out provides a hedge against uncertainty, and is all the more valuable the more uncertain (less predictable) the agency’s future costs of in‐house and external service arrangements. In the face of inherently uncertain cost streams, there is something to be said for conserving all available options. By interpreting the option to contract out as a financial asset with theoretically measurable value, arguments for government agencies maintaining at least some in‐house capabilities are given a basis in ‘rational economics’. Date: 2002 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:abacus:v:38:y:2002:i:2:p:153-176 Ordering information: This journal article can be ordered from Access Statistics for this article Abacus is currently edited by G.W. Dean and S. Jones More articles in Abacus from Accounting Foundation, University of Sydney |
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