Efficiencies of and Motivations for Contracting Out in the Public Sector: The Case of Social Services in Spain

Abstract

Debates on contracting out to the private sector is primarily focused on the cost efficiency of its provision, drawing on experiences with hard or technical services such as waste and water management. This paper focuses on a growing interest in the role and impact of sourcing decisions in softer or more human‐centered services, such as social services, where sourcing decisions are more complex or multifaceted. Using actual cost data obtained from open access government sources on social services in Spain, the first objective was to compare the cost efficiencies of different sourcing decisions using estimations of Technology Gap Ratios of different municipalities through Order‐M Panel Data. The second objective analyzed motivations for contracting out through a survey of municipal managers in Andalusia using principal components analysis combined with multinominal logit regressions. Our findings suggest that while contracting out to the private sector is, relatively speaking, the most cost efficient, most municipalities have decided to keep service provision in‐house. Decisions to contract out social services are not based only on cost but also incorporate a range of other considerations such as the municipalities' population size, its stakeholder expectations, and other complexities associated with service provision.