The Need for Enhanced Defense Contractor Cost Management Systems

Technological advances, increasing government regulations, and the structural decline in the size of U.S. defense spending are placing ever-greater requirements on the information provided by the contractor's cost accounting system. A survey of defense contractors reveals that their cost accounting systems are mainly used to provide cost estimation and, accordingly, these systems are not utilized for performance evaluation and managerial decision making. Since the traditional defense contractor's cost accounting systems do not produce the information that management requires, new cost management systems (CMS) must be designed and implemented. The CMS can assist contractors to: (1) obtain financial and operating information to evaluate and improve the performance of contracts, and (2) provide contractors with relevant information to plan, manage, control, and direct contracts. This article examines the effectiveness and efficiency of currently used cost accounting systems by government contractors, discusses the nature and characteristics of the CMS and their relevance for government contractors, and suggests step-by-step procedures for proper implementation of the CMS.     

Can the Use of Recommended Procurement Practices Save Money?

Procurement is an essential business function of government. Despite the importance of effective procurement practices to government efficiency, very little is known about what local governments do in practice, and how procurement practices affect government spending. This paper reports the results of a survey on procurement practices used by New York State school districts. To examine the potential costs savings from adoption of particular procurement practices, the authors estimate cost models for materials, supplies, and equipment spending. Results from the cost model indicate that the use of competitive bidding, purchasing calendars, central warehouses, and bidders lists are associated with significant cost savings.     

The Cost‐Effectiveness of Welfare‐to‐Work Programs: A Meta‐Analysis

This article uses the tools of meta‐analysis to assess cost–benefit studies of 50 mandatory welfare‐to‐work programs that were targeted at Aid for Families with Dependent Children recipients and evaluated by random assignment. The findings suggest that the costs of a typical evaluated welfare‐to‐work program probably exceeded its benefits from the perspective of the government, but those assigned to the program, and possibly society as a whole, may reap small positive net benefits. However, there are individual programs that are very cost‐beneficial. Further analyses of the determinants of the cost‐benefits of welfare‐to‐work programs to government and society as a whole show that some services are cost‐neutral, but others entail net costs, which are sometimes substantial. The findings suggest that less successful programs might be made more cost‐beneficial by dropping vocational training and basic education as program components, leaving mainly lower cost components, such as mandated job search and sanctions, but also possibly the more costly financial incentives.     

E‐government and public service quality in Ghana

This article contributes to the growing discourse on the potential of e‐government to transform the operations of public sector institutions, thereby improving public services. It does so by conceptualizing public service quality into efficiency, economy (cost reduction), customer satisfaction, and service accessibility and draws on qualitative data from the Ghanaian narrative for illustration. As previous studies have demonstrated, this study also affirms the potential of e‐government in improving public services delivery by increasing efficiency, reducing the cost of operations, expanding access to services, and achieving customer satisfaction. Yet, there remains a repertoire of challenges such as weak ICT infrastructure especially in towns and villages, incessant power outages and illiteracy, which are drawbacks to fully harnessing the benefits of e‐government in Ghana. The study recommends that these challenges should feature prominently in e‐government policies to increase the chances of solving them.     

Privatization and cost reduction

In this paper several examples of government contracts with private firms are examined to see how experience conforms to a principal-agent model of cost minimization via competitive bidding and how important are the many qualifications to the model. Fifteen cases of local government contracting are examined.The course of private contracting is not always smooth — as judged by the many contract disruptions observed and by the number of cities that believe they are no longer saving money by contracting and those which have resumed public production. It also seems to be the case, however, that competition generally reduces initial costs, that in many cases cost savings persist, that it is possible to stimulte competition, and that providing for continual interaction, as contrasted with simply monitoring performance, can prevent disruption.     

INCREASING PRODUCTIVITY OF GOVERNMENT'S RELIANCE UPON OUTSIDE ORGANIZATIONS TO PROVIDE ANALYSIS AND MANAGEMENT SERVICES

The federal government spends vast sums of money for management and analysis services. The authors contend that the selection process to determine the winners of the awards of contracts to perform these services too often disregards cost competitiveness as a factor in the award. The relative importance of technical proficiency and cost are examined and a model is proposed whereby a high level of technical expertise can be obtained at a more reasonable cost.     

Voters’ commitment problem and reforms in welfare programs

When will a vote-seeking government pursue unpopular welfare reforms that are likely to cost it votes? Using a game-theoretical model, we show that a government enacts reforms that are unpopular with the median voter during bad economic times, but not during good ones. The key reason is that voters cannot commit to re-elect a government that does not reform during bad times. This voters’ commitment problem stems from economic voting, i.e., voters’ tendency to punish the government for a poorly performing economy. The voter commitment problem provides an explanation for the empirical puzzle that governments sometimes enact reforms that voters oppose.     

Efficient anarchy

Can anarchy be efficient? This paper argues that for reasons of efficiency, rational, wealth-maximizing agents may actually choose statelessness over government in some cases. Where markets are sufficiently thin or where government is prohibitively costly, anarchy is the efficient mode of social organization. If total social wealth under conditions of relatively lower levels of trade is not substantially smaller than it is under conditions of relatively higher levels of trade, the cost of government may exceed the social benefits it provides. Likewise, if the cost of a state is sufficiently large, even substantial differences in social wealth under these two scenarios may prove too small to justify the formation of government from a cost-benefit perspective. The framework I provide explains the persistence of anarchy in two major areas where we tend to observe it: among primitive societies and at the global level. (JEL P48)     

Competition and Selection in Municipal Bond Sales: Evidence from Missouri

This article describes the results of an interest cost analysis of local government debt issuance in the State of Missouri. In Missouri the vast majority of municipal bonds are sold on a “no bid” basis. We discuss the theoretical arguments for and against competition and selection. Then we determine the degree to which cost differences exist while correcting for any potential selection bias. We use data on local government general obligation bonds sold from May 2004 to May 2005 provided by the Missouri State Auditor's office. We find that this substantial lack of competition imposes significant costs on Missouri governments.     

The cost disease and government growth: Qualifications to Baumol

Changes in real world wage movements across sectors account for about a third of the rise in the cost of U.S. government services between 1959 and 1989, while relatively slower productivity in the public sector accounts for the remaining two-thirds. Even though it is slower, however, the productivity record still is positive even in the labor intensive government sector. Consequently Baumol argues that the public's likely future objection to necessary increases in the share of expenditures over the next 50 years will betray a fiscal illusion unless policymakers take pains to dissolve it. But slower productivity may be equally due to the structural organization. Removing public monopolies, reducing bureaucracies, and undertaking privatization in education for example, are other policy options that could radically change the productivity record. Meanwhile in his recent calculations of dramatic government expenditure increases expected in the next half century, Baumol omits reference to the marginal welfare cost of public funds, which on our estimates, will increase at least ten times to reach 1.71 by the year 2040.     

The effects of cashing-out food stomps on household food use and the cost of issuing benefits

The recent report produced by Vice President Gore's committee on government efficiency highlights the importance of streamlining government operations. But often there are trade-offs between administrative streamlining and accomplishing substantive program objectives. This article examines these tradeoffs in the context of the Food Stamp Program, an important component of the United States' safety net for providing low-income assistance. We estimate impacts on both administrative costs and substantive outcomes (participant food expenditures) resulting from issuing program benefits in the form of checks rather than the usual food coupons. The findings, which are based on experimental tests of the cashout approach in parts of Alabama and California, suggest that significant cost savings can be attained through cashout but that these savings may be achieved at the cost of weakening the program's ability to achieve its substantive objective of encouraging food use.     

Does political reform increase wealth?: or,why the difference between the Chicago and Virginia schools is really an elasticity question

This paper shows that contrary to Becker' work there is no innate tendency for political competition to reduce the total cost of government wealth transfers. Simple examples demonstrate how the effects of government policies on total wealth boil down to the elasticities of the marginal support and opposition curves. Disagreements between the Chicago and Virginia schools of political economy can be understood as a disagreement about these elasticities. The broader implications for this argument in terms of the efficiency of the common law are also discussed.     

The size of government

Most research on the causes of growth in government expenditure has focused on the demand for government services. In this paper, we argue that in fact this growth may have occurred because of changes in supply. Changes in technology leading to increased specialization and thus increased opportunity costs of self-production have led to increased market production and increased record keeping. Also, female labor force participation has increased. Both of these factors serve to reduce the (efficiency) cost of collecting taxes; if the demand for government spending has not changed, this increase in supply would lead to a larger public sector. We estimate a system of simultaneous equations for the period 1929–1970 incorporating this hypothesis, and the results are consistent with the theory. We are able to explain virtually all of the growth of government; increases in female labor force participation seems to be a very important variable in this explanation.     

The dilemma of government responsiveness

The expectation that the government will respond to future circumstances, say bailing out a dictator to avoid a bloodbath, or raising taxes on immovable capital investments, often hinders the establishment of appropriate incentives for efficient behavior. The government's dilemma, simply, is that it may be unable to commit future governments not to be responsive. Contracts and constitutional provisions are mechanisms to limit responsiveness. So too are arrangements that increase the cost of being responsive, or build reputations for adhering to certain patterns of behavior. A promising strategy for being responsive is to base government actions on variables not under the control of individuals, such as unalterable characteristics or aggregate outcomes. These are at best palliative measures: Informed policy making must recognize the tension between providing appropriate incentives and permitting government to be responsive.     

Reducing the Compliance Burden of Non-profit Organisations: Cutting Red Tape

Australian governments now rely on the non-profit sector to provide essential services. Yet, anecdotally, the compliance burden imposed by governments consumes scarce service delivery resources. This study quantifies the cost of government generated paperwork for Queensland non-profit organisations. Fourteen non-profits kept logs to record government paperwork over 12 months. The non-profits also provided their experiences of government paperwork and in particular grant submission and reporting processes. The study finds that government grant paperwork forms the bulk of a non-profits total paperwork burden with grant submissions being the most costly to complete. Costs are clearly regressive with small non-profits bearing a significantly higher burden. Governments need to lead the way and empower the non-profit sector by reducing this administrative burden and releasing the funds for direct service provision .     

Expenditure effects of metropolitan tax base sharing: A public choice analysis

This research explores probable budgetary consequences from the introduction of an institutional change which requires communities in metropolitan areas to pool any growth in the commercial-industrial tax base so that all cities benefit from new development irrespective of where the development occurs. Sharing of the tax base has been suggested as a means to overcome fiscal disparities among local governments in metropolitan areas and to reduce competition for new industrial development, thus, promoting ‘orderly development’ of the urban area. An alternative view of the institutional change focuses on the consequences of removing the tax base from the control of the local unit of government and suggests that based upon existing studies of government size and the cost of public services, government managers will be less responsive to the wishes of the citizen/taxpayer after the introduction of tax base sharing. The efficiency aspects of local government finance are examined and based upon data for the Minneapolis-St. Paul metropolitan area, the expenditure effects are estimated. The empirical evidence suggests that while revenue flows are altered in the metropolitan areas, the primary impact of tax base sharing has been to expand the level of government expenditures, not equalize interjurisdictional tax rates.     

The influence of management on the cost of fire protection

An important and unresolved issue central to the study of government performance is how the actions of managers and the nature of organizations affect the cost of public services. This paper presents an empirical analysis of fire departments that estimates the influence of managerial choices on per capita spending within a simultaneous public production system. It does so by refining a theoretical cost model from the field of public management to include fundamental dimensions of government organizations and administration. Two‐stage least squares regression analysis is then employed to examine the fire protection case. The results of the analysis substantiate the intuition that managerial practices and decisions influence the cost of a public service. They show that the cost of fire protection depends significantly on the outcomes of a department's fire prevention and suppression activities, some key aspects of a department's management practices, the configuration of its workforce and equipment, its legal structure, and factors in its external environment. © 2004 by the Association for Public Policy Analysis and Management.     

Demonstration evaluations and cost neutrality: Using caseload models to determine the federal cost neutrality of New Jersey's reach demonstration

The Reagan Administration's Interagency Low Income Opportunity Advisory Board (ILIOAB) requirement that states conduct impact evaluations of their welfare reform demonstrations no doubt led some states to conduct evaluations when they otherwise might not have. The ILIOAB requirement that demonstrations be cost neutral to the federal government, on the other hand, limited the ability of states to test promising approaches that require more resources. The New Jersey experience with REACH clearly demonstrates the limitations of caseload modeling for assessing cost neutrality. In retrospect, too much might have been asked of a fairly crude forecasting technique. If carefully designed, experiments can provide better information on participant impacts and cost neutrality, although different experimental designs are preferred for estimating participant impacts than for estimating cost neutrality or overall impacts.     

The overstated economy: Implications of positive public economics for national accounting

Current national income accounting, which is based on the ‘comprehensive production concept’, is criticized on the basis of the ‘modern transfer’ view of government activity, which is based on a positive theory of bureaucracy and representative government, and is shown as ‘overstating’ the size of the national economy. Such mismeasurement inevitably leads to misunderstanding the macroeconomic effects of nationalization, redistribution and stabilization policies. An alternative concept, the ‘restricted market production concept’, is shown as providing a consistent and economically meaningful measurement of the size of the national economy and of the relevant effects of various government policies. qu]The underlying assumption is that [government] services are worth their costs, i.e., that they are produced and supplied after a proper balancing by the authorities (or the electorate itself on given occasions) of their social advantages and social cost. [A footnote continues!] This assumption may be correct in societies that are well governed but would be incorrect in those that are not. Paul Studinsk; The Income of Nations, 1961 (bracketed words added)     

The Walsh contract for central bankers proves optimal after all!

A recent paper argues that the Walsh linear inflation contract does not prove optimal when the government concerns itself about the cost of the central bank contract (Candel-Sánchez & Campoy-Miñarro, 2004). This result relies on assuming that the participation constraint does not represent an effective constraint on the central banker’s decision. We show that the Walsh linear inflation contract does produce the optimal outcome, even when the government cares about the cost of the contract, assuming that the participation constraint holds.