What Should Not Be Contracted Out: A Consequentialist Perspective

Abstract

In what fields, if at all, is contracting out of government functions normatively impermissible? The theoretical framework proposed in this article focuses on this question from the perspective of two normative values: personal rights, and democratic decision-making and accountability. This analysis, conducted within a consequentialist framework, stresses the implications of the explicit and implicit reliance of normative arguments on assumptions concerning privatization outcomes. Special attention is given to the normative implications of three types of variations in the contours of contracting out that affect the severity of the principal-agent problem: differences in public-private incentive alignment; the degree of product observability; and differences in private firms’ market share in product provision. This theoretical framework is then applied to two central case studies: the contracting out of core incarceration and military functions. While the normative assessment of contracting out of incarceration finds little reason to prohibit this practice in some developed nations, an inherent democratic accountability deficit constitutes a grave concern with respect to the contracting out of core military operations in combat zones.