Wednesday, March 9, 2022

The danger of outsourcing public services

 Here in interesting paper from The Quarterly Journal of Economics that looks at the privatization of ambulance service in Sweden. Privatization schemes often are advocated as a way to reduce government spending, but there may be significant social costs that need to be considered.

Here is the abstract:

Economic theory predicts that outsourcing public services to private firms reduces costs, but the effect on quality is ambiguous. We explore quality differences between publicly and privately owned ambulances in Stockholm County, Sweden, a setting where patients are as good as randomly assigned to ambulances with different ownership status. We find that private ambulances reduce costs and perform better on contracted measures such as response time, but perform worse on noncontracted measures such as mortality. In fact, a patient has a 1.4 percent higher risk of death within three years if a private ambulance is dispatched (in aggregate, 420 more deaths each year). We also present evidence of the mechanism at work, suggesting that private firms cut costs at the expense of ambulance staff quality. 

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