DP11857 Contracting out the Last-Mile of Service Delivery: Subsidized Food Distribution in Indonesia

Author(s): Abhijit Banerjee, Rema Hanna, Jordan Kyle, Benjamin Olken, Sudarno Sumarto
Publication Date: February 2017
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Programme Areas: Development Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=11857

Should government service delivery be outsourced to the private sector? In a randomized field experiment across 572 Indonesian localities, we show that allowing for outsourcing reduced the operating costs of a subsidized food program without sacrificing quality. However, citizens only reaped the gains from efficiency in terms of lower prices in areas where we exogenously increased the level of competition in the bidding process. We find that while the selection among bids during the procurement process appears broadly sensible, elites were sometimes able to block the process entirely, either ex-ante or ex-post, limiting the magnitude of the gains from outsourcing.