University of Michigan Gateway Ford School

Policy Report on Privatization

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February 2004


While many states and localities are turning to privatization as a way to provide services to their citizens, surprisingly little is known about these choices. Much of the debate over privatization pays little attention to the rationales and consequences of private vs. public service provision. With an eye toward advancing understanding about privatization, the University of Michigan’s Office of Tax Policy Research (OTPR) and Center for Local, State, and Urban Policy (CLOSUP) sponsored a series of studies on privatization. This empirically grounded research can provide policymakers with a sound basis for assessing whether and how privatization should be undertaken. This report begins by providing a historical background of privatization and a discussion of the nature and prevalence of privatization in the United States. Section II provides an overview of the empirical research on cost savings, quality, equity, employment, and political effects of privatization. The findings from the papers commissioned by OTPR and CLOSUP are presented alongside findings from other previously published research. Section III addresses some of the unique considerations for state and local governments, to help policymakers and government officials understand the potential benefits, costs, and risks of privatizing particular government services. The final section of this report identifies avenues for further research. Privatization research is still in its infancy; questions abound, and there is much empirical ground yet to cover.

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Keywords: Economy and Economic Development, Intergovernmental Relations, Public Finance & Taxation

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