Efficient Local Government Service Provision: The Role of Privatization and Public Sector Unions

Working Paper No. 22088 Local governments spend roughly $1.6 trillion per year to provide a variety of public services ranging from police and fire protection to public schools and public transit. However, we know little about public sector's productivity in delivering key services. To understa...

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Bibliographic Details
Published inNBER Working Paper Series p. 22088
Main Authors Jerch, Rhiannon, Kahn, Matthew E, Li, Shanjun
Format Paper
LanguageEnglish
Published Cambridge National Bureau of Economic Research, Inc 01.03.2016
Subjects
Bus drivers
Cost control
Economic theory
Efficiency
Employees
Employment
Estimates
Fire protection
Labor unions
Local government
Operating costs
Politics
Power
Privatization
Productivity
Public schools
Public sector
Public services
Public transportation
Wages & salaries
Workforce planning
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Summary:Working Paper No. 22088 Local governments spend roughly $1.6 trillion per year to provide a variety of public services ranging from police and fire protection to public schools and public transit. However, we know little about public sector's productivity in delivering key services. To understand the productivity both over time and across space, we examine public bus service, which represents a standardized output for benchmarking the cost of local government service provision. There is significant dispersion across transit agencies in the operating cost per bus mile with the highest being more than three times as high as the lowest among top 20 largest cities by population. We estimate the cost savings from privatization and explore the political economy of why privatization rates are lower in high cost unionized areas. Our analysis finds that the full privatizaton could result in cost savings of $5.7 billion in 2011 and that the gain in economic efficiency from more closely aligning bus fares with production costs would be worth at least half a billion dollars.
ISSN:0898-2937
DOI:10.3386/w22088