A Privatization Primer: Issues and Evidence

This study was sponsored by the Deputy Chief of Naval Operations for Logistics (N4) who asked us to assemble the lessons learned in outsourcing and privatization. Earlier work for this study identified new opportunities for the Navy and identified initial lessons learned at a Navy technical center. This study also identified specific ways to streamline the competition process required by OMB Circular A-76, and initial findings of five outsourcing and competition case studies reported in earlier reports issued from this project. In this final report, we focus on privatization, as distinct from outsourcing. We make the distinction clearer in the body of the paper. For this report, we reviewed the economics literature to determine whether (and if so, why) public sector firms are inherently less efficient that private sector firms. We conducted case studies of the office of Personnel Management (OPM) privatization of its background investigations unit, and the Naval Air Warfare Center (NAWC) - Indianapolis privatization. We also examined the competition program run by the City of Indianapolis for many of its city services, including the outsourcing of the local wastewater treatment plant. Finally, we collected information on other privatization, both in the United States and abroad.