Contracting Out: Promise and Performance

In this paper, it is argued that the benefits of competitive tendering and contracting have been overestimated, and that many of the apparent benefits actually reflect transfers rather than efficiency gains. Moreover, if arrangements for competitive tendering and contracting yield an inappropriate allocation of risk, such policies can reduce welfare rather than enhancing it as is commonly claimed. A number of case studies are presented to illustrate the latter proposition. Finally, some recommendations are presented for improvements in policy with respect to competitive tendering and contracting.