Successful privatization: Contractual policies and performance of public service contractors

It has been argued that the privatization of public service provision through contracting leads to gains in efficiency and effectiveness. However, all contracts are not equal and, in particular, informed by the principal-agent theory and contracting literature, four components of an outsourcing government's contractual policies are identified as being critical to the success of contracting out efforts. First, the reduction of information asymmetries between an outsourcing government and a private contractor may help in minimizing shirking by contractors. Second, the provision of incentives may help in aligning a contractor's interests with those of the government. Third, autonomy and independence given by an outsourcing government may influence a contractor's ability in delivering services efficiently and innovatively. Fourth, competition among contractors may directly affect cost savings and service quality. Furthermore, the interrelationships among these components add complexity to the relationship between the government and the contractor.;This study proposes and tests the effects of these four policy components on the performance of contracted service provision in the context of community mental health service delivery in the State of Ohio. By developing and implementing a survey questionnaire, the study operationalized and measured these four components of contractual policies. Factor analysis was implemented to identify sub-components. Additional information on the dynamics of the government-contractor relationship was obtained through detailed document reviews and interviews. Performance measures for service delivery were constructed using Data Envelopment Analysis.;Contributions of this study include the synthesis of two largely independent bodies of literature to develop a conceptual framework capable of describing and predicting contractual policies and their effects on contractor performance. This study also operationalized and tested this conceptual framework in the context of mental health services delivery, leading to a better understanding of how such contracts function in practice. Additionally, this study contributes to the evaluation literature through the construction of multi-dimensional measures of effectiveness and efficiency of service delivery. Policy-relevent conclusions regarding the nature of contracting and privatization are drawn.