There is a trend moving towards private production of publicly financed services. This project studies the economic consequences of the choice between public and private production in terms of cost and quality. International studies indicate that public procurement of transportations and technical activities may result in cost reductions of up to 30 per cent compared with public production. For "softer" activities the cost savings potential is considerably smaller and for health-care it is highly uncertain. According to the judgment of the Swedish Competition Authority, public services of about 250 billion SEK could be opened to competition between private producers. On the other hand, private production comes with a loss of control for the public principal with the risk of reduced service quality.
A starting-point is that all public services are not equally suited to contracting out. Differences between public and private production arise in the interplay of production mode, competition, and difficulties of contracting. The output of the project will include a survey paper on outsourcing of publicly financed services and an empirical study of Swedish municipalities.
The project was funded by the Jan Wallander and Tom Hedelius Foundation.
