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

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  • Rhiannon Jerch
  • Matthew E. Kahn
  • Shanjun Li

Abstract

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.

Suggested Citation

  • Rhiannon Jerch & Matthew E. Kahn & Shanjun Li, 2016. "Efficient Local Government Service Provision: The Role of Privatization and Public Sector Unions," NBER Working Papers 22088, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:22088
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Union Giveaways in Air Traffic Control Act Set a Bad Precedent
      by James Sherk in The Foundry on 2016-05-13 18:48:50
    2. The Economics of Moving a Public Bus 1 Mile: Unions Raise the Average Cost of Service
      by Matthew Kahn in Environmental and Urban Economics on 2016-03-26 03:22:00
    3. An Explanation for Why the Washington Metro Public Transit is Crumbling
      by Matthew Kahn in Environmental and Urban Economics on 2016-04-04 18:53:00
    4. Public Employee Pensions and Pay
      by Matthew Kahn in Environmental and Urban Economics on 2016-04-24 20:01:00
    5. Some NYC Public Sector Economics: High Public Hospital Pay and Tax Payer Subsidies
      by Matthew Kahn in Environmental and Urban Economics on 2016-04-26 18:54:00
    6. Does Puerto Rico's Debt Crisis Foreshadow Similar Defaults Threats in U.S Urban Public Sector Union Strongholds?
      by Matthew Kahn in Environmental and Urban Economics on 2016-05-12 05:34:00
    7. The Economics of Why Paris Smells Bad
      by Matthew Kahn in Environmental and Urban Economics on 2016-06-13 09:26:00
    8. Some Urban Economics of Public Infrastructure Investment
      by Matthew Kahn in Environmental and Urban Economics on 2016-07-24 22:42:00
    9. Clash of the Titans: Summers vs. Glaeser on Infrastructure Investment
      by ? in Environmental and Urban Economics on 2017-01-23 05:42:00
    10. The Simple Economics of Public Transit "Cannibalization"
      by Matthew Kahn in Environmental and Urban Economics on 2017-03-31 18:13:00
    11. An Answer to Steve Ballmer's Question About Government Expenditure Patterns
      by Matthew Kahn in Environmental and Urban Economics on 2017-04-18 07:53:00
    12. California's High Taxes and "Spatial Equilibrium"
      by Matthew Kahn in Environmental and Urban Economics on 2017-04-21 18:07:00
    13. Why Are NYC's Subway Trains So Old?
      by Matthew Kahn in Environmental and Urban Economics on 2017-06-06 19:23:00
    14. An Economist's Look at the NYC Public Transit Budget
      by Matthew Kahn in Environmental and Urban Economics on 2017-07-26 19:33:00
    15. Public Transit Investment in Older, Progressive Cities: The Tradeoff of Investing in Capital versus Labor:
      by Matthew Kahn in Environmental and Urban Economics on 2017-07-14 05:08:00
    16. Urban Economics in the New York Times
      by Matthew Kahn in Environmental and Urban Economics on 2017-07-23 19:37:00

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    More about this item

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets
    • R4 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics
    • R5 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis

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