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