Is the lack of growth in privatization due to government failure?
Theory would suggest that the same processes that create government inefficiency, bureaucratic unresponsiveness, government monopoly production, and principal agent problems (Eggers and O’Leary 1995; Savas 2000) also cause governmental reluctance to privatize. However, published research and the ICMA data provide limited support for this view. Contracting is not new. One reason why there may be so little growth in privatization is that contracting out is not a new phenomenon for local governments. Many services were contracted out in the 19th century and only brought in house as part of the “good government” movement launched to stem problems of corruption (Adler 1999). Henig (1989) argues that contracting by local governments has been a long-standing practice, and that naming these activities “privatization” was part of an effort by public-choice proponents to show empirical support for their propositions. Thus, the trend shown in Figure 1 is flat because the baseline is 1982, when co
