The Decision to Contract out

Abstract

This article examines the determinants of contracting out among cities in the United States. A precondition to contracting out is the expected realization of the cost savings from external production as a result of scale economies and/or increased competition in the supply of public services. Yet, whether or not a city chooses external production depends on the fiscal pressures within the city and the political impediments. This model of the decision to contract out is examined using a sample of 433 cities. The percentage of publicly provided services that are externally produced is found to increase with (1) greater cost savings, (2) more stringent fiscal conditions, and (3) less powerful public service constituency groups.