Is private production of public services cheaper than public production? A meta‐regression analysis of solid waste and water services

Privatization of local government services is assumed to deliver cost savings, but empirical evidence for this from around the world is mixed. We conduct a meta‐regression analysis of all econometric studies examining privatization of water distribution and solid waste collection services and find no systematic support for lower costs with private production. Differences in study results are explained by differences in time period of the analyses, service characteristics, and policy environment. We do not find a genuine empirical effect of cost savings resulting from private production. The results suggest that to ensure cost savings, more attention be given to the cost characteristics of the service, the transaction costs involved, and the policy environment stimulating competition, rather than to the debate over public versus private delivery of these services. © 2010 by the Association for Public Policy Analysis and Management.     

Transforming top‐down agricultural extension to a participatory system: a study of costs and prospective benefits in Egypt

This article challenges some previous assessments of agricultural extension relying on simple measures of costs per farmer trained. Taking the case of Egypt, five pilot projects that aim to transform the existing agricultural extension system to a participatory system are analysed as regards their cost‐effectiveness and prospective cost–benefits. It is shown that the intensity and likely impact of participatory approaches among the different projects vary. Hence, it is insufficient to judge extension programmes by their cost‐effectiveness alone. In the case of cotton, for example, the costs per farmer trained are considerably lower than in horticultural crops but there are large differences in prospective benefits which would make investment in participatory extension in the latter more promising. The article calls for a more careful analysis of the costs of extension programmes in agricultural development and identifies four major cost categories, namely base costs, start‐up costs, recurrent and farmers' costs. The article also submits that in the context of the debate on privatization of agricultural extension there is a role to be played for the public sector in agriculture. The success of participatory approaches to extension will depend on the quality of services provided in connection with farmer training programmes. Copyright © 2002 John Wiley & Sons, Ltd.     

Deep-draft dredging of U.S. coal ports: A cost-benefit analysis

This article discusses whether U.S. society should invest in large-scale coal port development and examines specifically financing the deep-draft dredging of coal ports on the East and/or Gulf Coasts (Baltimore, Hampton Roads, Mobile, and New Orleans) so that fully loaded, large coal-carrying colliers can export coal to Western Europe. By assuming a society-wide perspective, no costs and benefits are attributed to various parties. Although the multifaceted nature of the coal port issue is acknowledged, the core of this study is a large number of different simulations. Each simulation optimizes the United States-Western Europe coal trade for a given demand, ocean transportation cost structure, and cost of capital. This relatively simple model focuses on the key tradeoff: the cost of dredging versus lower ocean transportation costs. The study supports those recommending caution in coal port development. The most striking conclusion is the robustness of two solutions - no dredging or dredge only Hampton Roads - depending on the assumptions. Our conclusions also generally do not support simultaneously dredging all deep-draft options, the concurrent dredging of more than one port, or dredging either of the Gulf ports before the two East Coast ports.     

Institutional preconditions of privatization in market-based political economies: Implications for Jordan

Concepts of privatization have been adopted on a global scale. Yet few studies examine issues other than economic and selected political ones. This article argues, however, that a broad spectrum of institutional considerations must be evaluated in order to assess the viability of any proposed privatization strategy. A further distinction must be made between countries with developed markets and those market-based political economies (MBPEs) whose extant institutional configurations have not reached a level of independence to fully support extensive privatization measures. Jordan, Turkey and Egypt would be examples of such countries. This article contends that the enactment and implementation of privatization policies will achieve its avowed goals only (a) if the state-controlled enterprises (SCEs) are sufficiently independent of their supervising bureaucracies (presumably a ministry, the treasury or development planning organization) prior to their transfer to a private partner and (b) if the government possesses requisite monitoring capacity to ensure the fulfilment of contractual obligations of the privatized entity. An ancillary thesis suggests that the societal and organizational culture must be succinctly separated to warrant a full-scale transfer of SCEs to the private sector. In Jordan, privatization has been discussed for a number of years, but no projects have been attempted so far. The article assesses the likelihood of large-scale privatization occurring soon.     

Untangling Housing Cost and Transportation Interactions: The Location Affordability Index Model—Version 2 (LAIM2)

Abstract

It is now accepted that to have an understanding of housing affordability one must consider not only housing costs, but also the transportation costs associated with that household location. To make this information readily accessible to the public, the United States government created an Internet resource, the Location Affordability Portal – Version 2 (www.locationaffordability.info), to provide housing and transportation costs for every neighborhood in all 50 states and the District of Columbia. Although the statistical model at the heart of this resource was designed for predictive accuracy, its design and parameter estimates can provide additional insights into the interaction of housing cost and transportation choices (and thus its cost). This study describes the development and explores the policy implications (and limitations) of this structural equations model, the Location Affordability Index Model – Version 2 (LAIM2).     

How Affordable Is HUD Affordable Housing?

This article assesses the affordability of U.S. Department of Housing and Urban Development (HUD) rental assistance properties from the perspective of transportation costs. HUD housing is, by definition, affordable from the standpoint of housing costs due to limits on the amounts renters are required to pay. However, there are no such limitations on transportation costs, and common sense suggests that renters in remote locations may be forced to pay more than 15% of income, a nominal affordability standard, for transportation costs. Using household travel models estimated with data from 15 diverse regions around the United States, we estimated and summed automobile capital costs, automobile operating costs, and transit fare costs for households at 8,857 HUD rental assistance properties. The mean percentage of income expended on transportation is 15% for households at the high end of the eligible income scale. However, in highly sprawling metropolitan areas, and in suburban areas of more compact metropolitan areas, much higher percentages of households exceed the 15% ceiling. This suggests that locational characteristics of properties should be considered for renewal when HUD contracts expire for these properties, based on location and hence on transportation affordability.     

Moving to Location Affordability? Housing Choice Vouchers and Residential Relocation in the Portland,Oregon, Region

Abstract

Location affordability measures a household’s combined cost of housing and transportation. Low-income households have the most to gain from housing with lower transportation costs. This research analyzes whether Housing Choice Voucher Program households—participants in a program designed to provide low-income households with a greater degree of housing choice—are able to choose housing that lowers their transportation costs in a metropolitan region with a compact, vital urban core. A mixed-methods approach is used to investigate the differences in location affordability and efficiency among 2,026 voucher recipients who moved within the Portland, Oregon, region during 2012–2013. Location mattered to movers, but in some unexpected ways. Urban movers relocated to less location efficient areas, whereas suburban movers’ location efficiency remained stable. In tight housing markets, voucher holders may be edged out of location-efficient neighborhoods and thus incur increased transportation costs.     

Outsourcing Public Health Laboratory Services: A Blueprint for Determining Whether to Privatize and How

In a continuing effort to reform and reinvent the way public organizations do business, the outsourcing of services has become a popular tool, particularly as resource constraints limit options available to governments. All too often, the decision is made, for reasons of ideology or resource constraints, to outsource services without giving careful consideration to the impact of privatization on the core missions of an agency, or whether privatization, in fact, offers real cost savings. Purchasing tools designed for traditional commodity purchases are often grossly unsuited for making decisions on specialized technical services.
This article suggests a process for the evaluation of an option to outsource laboratory services. It suggests that, prior to contracting or privatizing services, the concerned agency should evaluate:
the impact on the agency's core mission
the availability, stability, and reliability of private sector service providers
the relative costs of internal and external (public or private sector) service providers
the potential impact on regulatory enforcement
the ability to monitor the performance of external providers
potential conflicts of interest
Based on this model, the ongoing internal evaluation of services offers public agencies management tools to obtain the best value for the taxpayer dollar, not only in terms of the raw cost per test, but also in managing the quality of the services.     

State Infrastructure Banks and Intergovernmental Subsidies for Local Transportation Investment

This study reviews State Infrastructure Banks (SIBs) as an innovative financing mechanism for federal and state governments to support transportation financing for local governments, and determines the cost savings realized by local governments from receiving SIB loans rather than financing through the municipal bond market. The study finds that SIBs provide a mechanism through which local governments receive subsidized loans for their transportation investments. With the Ohio SIB, localities realized average borrowing cost savings between 34 and 184 basis points. Under the worst‐ and best‐case scenarios, 83 and 98 percent of projects, respectively, benefited from lower borrowing costs.     

A Comparative Study of the Effects of Institutional Arrangements in Municipal Solid Waste Services in Korea

In Korea, local governments are primarily responsible for providing municipal solid waste services to citizens. This paper examines the effects of different institutional arrangements and characteristics on cost savings, efficiency gains and productivity in the delivery of municipal solid waste services to citizens. In order to carry out this research, a hybrid cost function approach was employed, and cross-sectional time-series data from local governments of Korea covering a ten-year period (2000–2009) were used for empirical analysis. Empirical findings indicated that there were no effects of contracting-out on cost savings, efficiency and productivity gains in Korea. Specifically, the solid waste service costs were not significantly lower under contracting-out than under direct public delivery. In addition, contrary to the arguments of the proponents of privatization or contracting-out, efficiency and productivity gains were actually higher under direct public delivery than when contracted out.     

Bridging the Ideological Divide: Trust and Support for Social Security Privatization

Using a pair of national surveys, this article analyzes the individual-level sources of public support for Social Security privatization. Given the inherent risks associated with privatization, we argue that the political trust heuristic affords untapped theoretical leverage in explaining public attitudes toward privatization. We find that, among certain individuals, political trust plays an instrumental role in structuring privatization preferences. Political trust increases support for privatization, but only among liberals. This heterogeneity in trust’s impact is best explained, we argue, by the unbalanced ideological costs imposed by the potential privatization of Social Security. Among liberals, embracing privatization requires the sacrifice of core values, thereby making political trust a potent consideration. Political trust is inconsequential among conservatives because supporting privatization requires no comparable sacrifice for them.

Where Does Location Affordability Drive Residential Mobility? An Analysis of Origin and Destination Communities

Abstract

Despite an overall decrease in residential mobility after the 2007 housing crisis, many households, particularly those that are low income, continue to move in pursuit of a better life. Traditional theories of residential mobility suggest that mobility will occur when housing and transportation costs are cumulatively greater than the cost of moving to a new location. At the same time, the influence of these factors is not likely to be uniform across geographic contexts or for moves up or down the metropolitan hierarchy. Our analysis examines how well affordability measures explain patterns of county-level residential mobility. Specifically, we contrast conventional measures of affordability focused on the ratio of income to housing expense with measures of location affordability that factor in both housing and transportation costs. We find that whereas households tend to move from lower to higher cost locations, transit affordability at the destination plays an important role in mobility decisions.     

Privatization of public-sector services in practice: Experience and potential

Privatization—the transfer of assets and service responsibility from the public to the private sector—has been expanding at the state and local level. Empirical studies document significant cost savings, apparently due to incentives introduced by competition. The outlook is for continued expansion of privatization, including such areas as highways, transit, water supply, and education.     

A Contagious Concept: Explaining the Spread of Privatization in the Telecommunications Sector

Qualitative studies suggest that the spread of privatization of public utilities is due to a change of the economic paradigm and institutional isomorphism pressures. However, current quantitative studies mostly account for domestic factors. These factors can explain differences in national privatization trajectories but cannot explain the large trend. Based on a quantitative analysis of privatizations in the telecommunications sector in 21 OECD countries, the article argues that emulation pressures can explain the trend toward privatization. The analysis suggests that privatization gained legitimacy as more and more governments emulated privatization policies they observed in countries they perceived as similar. However, the article finds no evidence of cross‐sectoral diffusion. Thus, according to the analysis, telecommunications privatization diffused within the same sector between countries, but not within the same country between different sectors.     

THE PROMISE AND PERFORMANCE OF PRIVATIZATION: THE KNOXVILLE EXPERIENCE

The promoters of privatization promise a lot, most especially cost savings. Upon what are these promises based and t o what degree is actual perfor mance consonant with them? This article investigates this question by first reviewing the privatization literature and specifying what is promised and the basis for these promises. We then proceed to examine the pri vatization of asingle service in Knoxville, Tennessee with regard to what basis promises were made and the innovation pursued. Finally we offer a preliminary analysis of the extent to which the privatization initiative lived up to its promises.     

Privata: A model for privatization with multiple non-transitive objectives

Deregulation of public enterprises and services by privatization is very fashionable nowadays. The aim of privatization is mainly to increase effectiveness, while the government itself likes to maximize its revenue at the occasion of the takeover. Most of these public enterprises show a shortage in investment while maintenance of a reasonable employment level in the new private firm is also strongly desirable, not to mention the ecological obligations imposed on the new private firm. It means that takeover bids have to face multiple non-transitive objectives and several parties interested in the issue even several decision makers. Traditionally the optimization of all these objectives are then judged upon case by case in a rather subjective way. Consequently there is a need for a more general and objective, not to say scientific, method which can compare several takeover bids for privatization optimizing multiple objectives sometimes with different units of measurement. With that purpose, the Privata model was developed. Privata takes into consideration upper limits, lower bounds, dominating and nondominating effects, ending up with a set of nondominated takeover bids, which are ranked by using the reference point theory based on the maximal criterion values. In this way objectivity and decreasing marginal utility are fully respected. A theoretical explanation is followed by a simulation on several takeover bids for a public enterprise given multiple objectives.     

Is Activity-Based Costing Up to the Challenge When It Comes to Privatization of Local Government Services?

After its initial success in the private sector, activity-based costing (ABC) has been embraced by the public sector as an analytical tool that can be used to improve the efficiency of government operations, especially in the area of the privatization of operations. Despite claims that ABC can greatly enhance the evaluation of how to most efficiently deliver services, there are significant obstacles that must be overcome before ABC can be effectively implemented. In order to underscore the challenges facing successful ABC execution in the public sector, the use of activity-based cost accounting by the City of Indianapolis for its privatization initiatives is discussed. Generally ABC is not up to challenge of providing local governments with the tool necessary to comprehensively evaluate direct services and determine which are candidates for contracting out or privatization.     

Federal antitrust enforcement: A principal-agent perspective

We study the choices of two types of maximizing Public Servants over how far to carry privatization of industries and in what order to privatize. Two stylizations of the Public Servant's objectives are considered, a Niskanen-style Bureaucrat who maximizes a surplus budget subject to the constraint of staying in office, and a Populist who maximizes popularity/consumer welfare subject to the constraint of a balanced budget. Other things being equal, the Bureaucrat will privatize the sector (firms) with the least market power and the largest subsidy first. The Populist will adopt the same policy, if the marginal costs of products in the private sectors are not too high with respect to the marginal utilities. If the marginal costs are too high, however, the Populist will privatize the sector with the largest market power first. We also show that privatization is easier and faster in less democratic societies.     

Retirement income security in the United Kingdom.

This article examines the U.K. retirement income security system from the American perspective. It addresses issues that most concern U.S. analysts: how the United Kingdom has kept its future public pension costs at a manageable level, the extent to which privatization of public pensions has contributed to low pension costs, the popular appeal of individual pension accounts, and the impact of privatization on retirement income. These issues are best understood in the context of the U.K. pension program's particular institutional structure and policies, two of which--"contracting out" of public pensions, and strong reliance on means-tested benefits--have been largely rejected in the evolution of U.S. policy to date. Particular use is made of recently available data on coverage rates for public and private pension programs over the total working population and administrative records on inactive personal pension accounts.     

All Together Now? An Empirical Study of the Voting Behaviors of Homeowner Association Members in St. Louis County

Homeowner associations (HOAs), by design, collect homogenous members of a community into a residential development with defined boundaries and contain at least some very active individuals. This implies that HOAs may lower the transaction costs involved with voting resulting in HOA membership increasing voter participation. Further, as more HOAs provide goods and services to their members as substitutes for goods and services provided by the public sector, one would expect HOA members to vote more conservatively and in support of more privatization. Using a detailed population database constructed for Saint Louis County, Missouri, and results from the November 2004 general election, this article analyzes the effect that living in an HOA has on voter participation and on the results of several election issues. Following a similar study by the Public Policy Institute of California, the results show that, once population characteristics are controlled for, there is no HOA effect on the likelihood of HOA members to vote Republican. Unlike previous work, this study shows that if the vote reporting districts are broken into five mutually exclusive categories rather than using the 60% rule used in other studies, areas with more HOAs do show an increase in participation rates and an increased likelihood to vote against property tax increases. The results hold up even after the presence of spatial autocorrelation is confirmed and controlled for.