Bureaucratic Theory Meets Reality Public Choice and Service Contracting in U.S.

Local Goverment

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Angel Annisa Rizkia Syaputri Auni Azmi Ulya 170110090111 Herman Karina Dwianti 170110090082 Lisbet Meliana 170110090053 Novi Iriani Stivani M Malak Suryani Verdy Noverta

170110090089 170110090133 170110090058

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Public choice theory suggests that if public officials monopolize the service, the result is oversupply and inefficiency. Savas (1974, 474) argues that "since most city agencies are monopolies, their staff are automatically in a position to exercise monopoly power of their own parish and efficiency benefits that are rarely seen as an advantage. In short, we have deliberately built a system where people are at the mercy of the servants

Production of public services by external agencies has grown substantially since the early 1970s.

Public choice theory may be uniquely blessed (or cursed) with the development progress that the creator might have been desirable, but can not predict.

Reviews evidence for local service contracts are generally concluded that it did not produce the results of public choice theory predicts. For example, Stein (1990, 498) states that "research on indi vidual contracts for goods and services consistently find this way the service settings to be more efficient than direct service provision and production" (emphasis added).

Finally, Bennett and Johnson (1980, 392-93) asserts that "without exception, empirical findings show that the same level of output can be assigned to substantially lower costs if output is produced by the private sector than the public sector .... private sector production of public service offers an excellent opportunity for tax reduction without sacrifice of service; the best of all possible worlds, at least in this case, can be achieved

Claims on beneficial effect of local service contracts have also been made in other countries, such as the United Kingdom (Boyne, 1998a). This article aims to reassess the empirical evidence on the effects of service contracts in the United States ment of local governments and to evaluate the implications of this evidence for models of public choice of public administration. The first part of the article identifies three specific hypotheses on the impact of public choice of service contracts and the efficiency of expenditure. The second part of the article to evaluate whether this hypothesis is supported by empirical evidence on contracts with private organizations and other government units.

This article evaluates the evidence comparing the capital of local government agencies and external contractors as a producer of public service. The goal is not to compare the relative merits of public and completely private fully local service provision (the study containing evidence about this issue, including the collection of refuse, the hospital, the electricity and Bruggink, the water supply).

Public Choice Hypotheses

If the empirical evidence indicates that contracting out positive or insignificantly related to expenditure and unit costs, the public choice arguments can be rejected on the size cut expenses arising from service contracts.

Critique of the Empirical Evidence on Contracting

Types of Empirical Study The most common method of evaluating the impact of service contracting is multivariate statistical analysis of a cross-section of local governments.

the credibility of the evidence produced by the empirical studies can generally be ranked in the following order: 1. multivariate cross-sectional statistical 2. analyses bivariate longitudinal analyzes 3. bivariate cross-sectional analyzes

Supply of Refuse Collection by Private Contractors

Berenyi and Stevens (1988) conclude that municipal production is 28-42 percent more expensive than private production, and Kemper and Quigley's (1976) evidence suggests that contract supply is 13-30 percent cheaper than public supply. By contrast, Stevens (1978) finds that contracting leads to lower spending and higher efficiency only in cities with more than 50,000 inhabitants; in smaller cities, the performance of public and private suppliers is not significantly different. The other two multivariate analyses suggest that contracting out makes little difference to costs or efficiency, regardless of population size (Collins and Downes, 1977; Dubin and Navarro, 1988).

For example, the annual changes in local wealth Population or the number of customers in service revenues likely to be small. In short, the credibility of the evidence produced by empirical studies in general can be classified in the following order: Cross-sectional multivariate statistical analysis Longitudinal bivariate analysis Cross-sectional bivariate analysis

1. 2. 3.

Supply of Refuse Collection by Private Contractor Evidence of the impact of contracting for refuse colreading has been produced by the ten empirical studies (see Table 1 for a summary of research and the results). Seven studies found that private supply is associated with lower expenses, and six of them also showed that the external contractor is more efficient than municipal agencies. General pattern because it appears the evidence to support the theory of choice, however, only two of the five multivariate statistical tests give consistent results and at year 1971 cost per ton of garbage collected is 11 percent higher for city agencies than private contractors, but by 1975 this gap had narrowed to just 1 percent. Savas attribute these changes to the competitive threat of the presence of external contractors, but does not control the analysis for the characteristics of the neighbor-hoods and households served by each type of supplier. Indeed, perhaps the public choice theorists predict that city officials will allocate "easier" areas for their labor

Supply of Other Services by Private Contractors

Empirical evidence is consistent with public choice theory that four of the six functions: the production by private companies appear to lead to less spending by higher efficiency in services, highway construction and cost, the cost of property, and guarding the building. Evidence suggests that there is little difference between the suppliers of public and private saris and that this competition is associated higher prices.

Inter-Governmental Contracting

Municipalities can transfer responsibility for the production of services not only to companies private companies, but also to the units - Other units of government.

Two of the four studies regarding police services shows that the contract leads to higher efficiency. the results obtained by two other studies of police services is less clear.

Research contract for consideration of intergovernmental contract is a service property tax assessment analysis conducted by Lowery (1982). He argues that cities that contract with the residency "can affect the performance of vendors both in terms of price and in product quality by threatening to mangakhiri contract and give the contract to another vebndor atu could reproduce internally through the mechanisms of the traditional bureaucracy".

Impact of Contracting on Total Local Government Spending

According to an empirical test, contract expenses associated with a lower, but none of the research was to consider the quality of services, so the impact on efficiency is not known. However, in principle, this research may provide evidence of whether to cut expenses arising from the contract is returned to local taxpayers or recycling in the city budget.

Unfortunately, none of the studies provide evidence in this form. Three measures the extent of contracting in use: percentage of total expenditure on services in the contracting (rather than the percentage of the budget "in the save), a variable in dichotomous for the presence or absence of a contract, and the percentage of contracted services

General Problems in the Methodology of the Empirical Studies

In addition to the defects in specific studies noted above, there are three problems that undermine the valid- ity of all of the empirical evidence. 1. Absence of Controls for Local Preferens 2. Absence of Controls for Scale Effect 3. Absence of Measures of Competition

Common problems in empirical research methodology In addition to defects in specific studies above, there a problem that undermines the validity of all evidence of control over the empirical. No local preferences, lack of control over the scale effect. Finally, public choice theory suggests that public organizations perform more poorly (Boyne, 1996b) and that they scale effects could thus compensate for the competitive advantage of production externalization service.

Conclusion

There are a lot of criticism conclusions service contractors in the public sector. In this literature, it argues that the efficiency gains of contracting out must be balanced against the loss of equity, citizenship, and accountability (Donahue, 1989; Halachmi and Holzer, 1993; Hilke, 1992; Kettl, 1993; Morgan and England, 1988; Voytek, 199 1; Wilson, 1989). Such arguments assume that the positive effect on the efficiency of the service contract has been established empirically. However, states that empirical studies found a "consistent" and "without exception" contractors more efficient than the municipal supply proved false.

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