The impact of incentives, uncertainty and transaction costs on the efficiency of public sector outsourcing contracts

Since the late 1970s, the world has experienced a wave of microeconomic reform that has resulted in the privatisation of many previously State-owned assets, as well as other reforms directed at improving the efficiency of government business enterprises. This dissertation focuses on one important instrument of reform: outsourcing of public-sector service provision. Despite the prevalence of outsourcing, there has been relatively little empirical work analysing the effects of outsourcing at the contract level. This dissertation addresses three important empirical issues related to outsourcing. First, analysis of the magnitude and sources of cost savings associated with outsourcing was undertaken using a present value costing framework. Unlike other studies, this study includes transaction costs and considers how costs change over the life of the contract. The results indicate that savings of 37 per cent were achieved in the first year of contract operation, savings that were achieved through a combination of reductions in pay and conditions, labour-saving technological change and reductions in inefficiency. Secondly, the dissertation considered why the level of savings achieved fell to 24 per cent following contract variations at the end of year 1. Some evidence indicated that this may have been due to opportunistic behaviour or hold-up: that the contract service provider may have taken advantage of contractual incompleteness and increased its price during the course of contract renegotiations. Although hold-up is an important theme in the literature on contracts, little empirical work has been undertaken in verifying its existence. Thirdly, the impact of contract design on the efficiency of outsourcing arrangements was analysed. It is well known that contract theory predicts a trade-off between incentives and risk. Using the standard principal-agent framework, a simple model is developed to analyse the effects of demand uncertainty on the risk-incentive trade-off. This model is then tested using data from maintenance services contracts at two corporatised water retailers in Melbourne: an environment that is characterised by high levels of both cost and demand uncertainty. Using a general linear regression model, the results obtained indicate that the moral hazard effect dominated the risk premium effect

The effect of financial incentives on quality of care: the case of diabetes

Australia introduced an incentive payment scheme for general practitioners to ensure systematic and high quality care in chronic disease management. There is little empirical evidence and ambiguous theoretical guidance on which effects to expect on the quality of care. This paper evaluates the impact of the payment incentives on quality of care in diabetes, as measured by the probability of ordering an HbA1c test. The empirical analysis is conducted with a unique data set and a multivariate probit model to control for the simultaneous self-selection process of practices into the payment scheme and larger practices. The study finds that the incentive reform had a positive effect on quality of care in diabetes management and that participation in the scheme is facilitated by the support of Divisions of General Practice. This report was written by Anthony Scott, Stefanie Schurer, Paul H. Jensen and Peter Sivey

Introduction, dispersal and naturalisation of the Manila clam Ruditapes philippinarum in British estuaries, 1980-2010

The introduction of the Manila clam into British coastal waters in the 1980s was contested by conservation agencies. While recognizing the value of the clam for aquaculture, the government decided that it posed no invasive risk, as British sea temperatures would prevent naturalization. This proved incorrect. Here we establish the pattern of introduction and spread of the species over the first 30 years of its presence in Britain. We report archival research on the sequence of licensed introductions and examine their relationship in time and space to the appearance of wild populations as revealed in the literature and by field surveys. By 2010 the species had naturalized in at least 11 estuaries in southern England. These included estuaries with no history of licensed introduction. In these cases activities such as storage of catch before market or deliberate unlicensed introduction represent the probable mechanisms of dispersal. In any event naturalization is not an inevitable consequence of introduction and the chances of establishment over the period in question were finely balanced. Consequently in Britain the species is not currently aggressively invasive and appears not to present significant risk to indigenous diversity or ecosystem function. However it is likely to gradually continue its spread should sea surface temperatures rise as predicted

Market Integration Shape Organic Farmers’ Organisation

Increasing consumption of organic products in globalised food chains will require the involvement of thousands more smallholder farmers in many regions of the world. A study of Egypt, China and Uganda identified the three key factors of property rights regimes, cultural differences and social organisation as determents of the supply chain organization and farmers’ degree of direct integration in the export markets. Patterns are emerging where smallholder farmers are being socially and economically linked to larger farmers who may do some processing before the raw materials are handed over to the contracting company. Where transactions costs are high, local communities may develop and contract out the land directly to exporting companies who farm using employees. Four organisational patterns are identified which each leads to different types of livelihood benefits for the producers; preliminary results indicate that income and a reliable market access is the dominant benefits