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The Quality and Efficiency of Public and Private Firms: Evidence from Ambulance Services*

When Should You Adjust Standard Errors for Clustering?

Daniel Knutsson () and Björn Tyrefors

The Quarterly Journal of Economics, 2022, vol. 137, issue 4, 2213-2262

Abstract: Economic theory predicts that outsourcing public services to private firms reduces costs, but the effect on quality is ambiguous. We explore quality differences between publicly and privately owned ambulances in Stockholm County, Sweden, a setting where patients are as good as randomly assigned to ambulances with different ownership status. We find that private ambulances reduce costs and perform better on contracted measures such as response time, but perform worse on noncontracted measures such as mortality. In fact, a patient has a 1.4% higher risk of death within three years if a private ambulance is dispatched (in aggregate, 420 more deaths each year). We also present evidence of the mechanism at work, suggesting that private firms cut costs at the expense of ambulance staff quality.

Date: 2022
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The Quarterly Journal of Economics is currently edited by Robert J. Barro, Lawrence F. Katz, Nathan Nunn, Andrei Shleifer and Stefanie Stantcheva

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