Privatisation in the maintenance work of the National Board of Public Roads and Waterways. Part II, Separate report

Preface

The project “Privatisation in central government“, launched on 1 February 1987 jointly by VTY and the Labour Institute for Economic Research (TTT), has progressed to its second phase. The present report is the first separate study of the second part of the project. The starting points of the report are set out in Appendix 1.

The report examines the use of external services in the maintenance work of the National Board of Public Roads and Waterways (TVL) during the 1980s. In accordance with the definition established in the first sub-report, this concerns an examination of activities in which a public unit (an agency or similar body) retains the planning and financing functions, but the provision of the good in a technical sense has been transferred to a subcontractor or similar party.

In the report, the use of external services is approached from the perspective of decision-making and management. The procurement of external services is analysed as a decision-making situation in which the agency must resolve the “make or buy” problem — that is, whether to produce in-house or purchase from outside.

The theoretical framework for the “make or buy” problem is the principal-agent contracting problem. According to the theory, the success of privatisation is based on harnessing the high motivation of the contractor, the efficient flow of information, and sufficient competition. The fundamental problem for the principal — that is, the agency — is then how to best harness the forces emanating from contractors when their input is difficult to measure and when only they themselves know their true capabilities. The central question is: how should the organisation of information transmission and activity monitoring be resolved? (AI translation)

• ISSN: 0358-5980
• ISBN: 951-9282-05-X