Revisiting New Public Management: Overlooked Transaction Costs in Public Service Delivery

• In Event: Privatization, Policy Instability, and the Pursuit of Effective Public Service

Abstract

The New Public Management (NPM) domain emerged in the late 1970’s and early 1980s, rooted in the New Institutional Economics (NIE), and argued that small government and privatized public services would largely lead to lower costs and more efficient public service delivery. The logic lies in the notion that public service production should look more like markets: under competition, markets clear, and public services can be produced at the most efficient price and quantity. In the past three decades, public service delivery in developed countries has taken place under increased privatization and contracting to non-public sector entities. 

But the New Institutional Economics literature argued largely that efficiency gains could be made by privatization only when the transaction costs of public sector production exceeded those or private or market-based production. This study puts forth several underemphasized transaction costs of public service provision by market actors, including probity hazards, information costs, and monopolization. We review examples of these transaction costs from Medicaid privatization schemes and provide implications for public policy research.  

Author

• Jason A Coupet, Georgia State University
  Presenting Author