| Abstract: | From 1978 to 1994, the Department of Defense conducted more than 2,000 competitions in which private contractors and the government's in‐house team bid to provide a service performed in‐house before the competition. A three‐equation model is constructed, which is used to estimate the in‐house bid, the minimum contractor bid, and the in‐house team's baseline cost. The model accounts for the fact that the in‐house bid is constrained not to exceed its baseline cost. The estimates are used in simulations of the savings from the completed competitions ($1.55 billion annually, 35 percent of the baseline cost) as well as the savings from various alternative policies, including competitively tendering all the functions on the Department of Defense's list of potential candidates ($7.58 billion annually). © 2001 by the Association for Public Policy Analysis and Management. |
