Public Transportation and Contracting Out

Abstract

Contracting is often discussed as a cutback mechanism for public managers. The empirical evidence indicates that there are little savings in contracting out due to transaction costs. Public transit agencies exhibit path-dependent behavior; there are tangible conversion costs that may preclude changing the provision of services. As such, public managers should consider the provision of services very carefully as it may set an agency on a long-term trajectory that will be difficult to change due to both conversion and transaction costs.