Reducing Government Spending With Privatization Competitions: A Study Of The Department Of Defense Experience

Christopher Snyder, Robert Trost () and R. Derek Trunkey

The Review of Economics and Statistics, 2001, vol. 83, issue 1, 108-117

Abstract: 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. 2000 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

Date: 2001
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