Panel Paper: A Push or Pull? the Impact of Budgetary Pressure on the U.S. Federal Contracting out

Friday, November 9, 2018
McKinley - Mezz Level (Marriott Wardman Park)

*Names in bold indicate Presenter

Gyeo Reh Lee, Indiana University

While contracting out has played a significant role in infusing a market-oriented efficiency into the public sector, extant studies provide only a limited perspectives on the factors that force or restrict privatization or contracting out and their effects. In addition, both practitioners and scholars point to fiscal stress as a direct, fundamental factor of privatization, but the literature has failed to achieve conclusive results and typically overlooked the U.S. federal government in its theoretical and empirical discussions. In particular, the literature has paid little attention to agencies of the U.S. federal government as a main actor which can be motivated by budgetary pressure to make contracting out decisions. This paper proposes an agency budget model that summarizes the predictions of this paper about the effect of budget changes in federal agencies on the contracting out practices in the U.S. Relying on a vast literature of political science/organization/public management/budget theory and the Federal Procurement Data System as a main data source, this study explains how the implementation of the U.S. contracting out is affected by agency budgets as a function of the environmental factors and the internal factors of federal agencies. Evidence from a difference-in-differences approach reveals that budgetary pressure leads to agencies choosing to connect with other actors, with more contracting out. This suggests that agencies may work with other organizations to reduce costs and improve efficiency.