About this event

States spend roughly 9% of GDP on procurement from outside providers. Economic theories of outsourcing highlight an efficiency-quality tradeoff. How large is this tradeoff and what are the implications of outsourcing for overall public sector performance and citizens' welfare? I study these questions in the context of a widespread form of outsourcing - consulting - purchased by the universe of Italian municipalities. To identify the causal effects of consulting adoption, I exploit a national reform that lifted pre-existing caps on consulting expenditures, combined with quasi-exogenous variation in the intensity of prior restrictions. Greater access to consulting raises the quality of local public services and reduces the size of municipal budgets, without altering the fiscal sustainability of local government. This is partly explained by a reorganization of internal capacity: municipalities spend less on in-house personnel while relying more on skilled bureaucrats who complement external expertise. Next, I investigate potential barriers to consulting adoption. I consider two explanations. First, citizens may have preferences over how public services are produced, not only over outcomes, making outsourcing politically costly. Second, electoral pressure and mayors' expertise shape consulting adoption, pointing to agency and information frictions on the politician side. AI-led interviews and survey experiments with citizens and politicians will pin down the relative importance of these channels. Taken together, these findings highlight the importance of outsourcing in the public sector and the role of political economy considerations when organizing the production function of the state.

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This event will take place in SAL 2.04, 2nd Floor Conference Room, Sir Arthur Lewis Building, LSE, 32 Lincoln's Inn Fields, London WC2A 3PH.