Economic Efficiency of Centralized Public Procurement: Results from a Quasi-Experiment

Many governments across the Western world have for the past decades been experimenting with autonomous agencies, shared services and centralized public procurement as a means of increasing economic efficiency of public service delivery (Elston, 2012; Verhoest et al. 2012). Representing a Nordic perspective on this general trend, Danish public employees working in centralized government (app. 185.000 employees) have since the 2000s been obliged to purchase flight tickets through a centralized service provided by a private vendor. Public organizations and public employees are thus obliged to purchase all flight travels through this private vendor, which is the only provider ‘in town’ during the contract period. Theoretically, centralization of these services with a single private company enables the vendor to benefit from scale economies and thereby expectedly lower travel costs for the public sector, while the semi-monopoly situation will on the other hand theoretically contribute to higher costs (McCue and Pitzer, 2000; Albano and Sparro, 2010). Whether centralized public procurement in this field leads to lower costs can thus be regarded an empirical question.
The relative efficiency of centralized public procurement and traditional (decentralized) public procurement thus provides the focus of the paper. The paper more specifically aims to evaluate the economic efficiency of centralized public procurement with an empirical focus on flight travels for employees in the Danish public sector. The research will be designed as a quasi-experiment where we compare the costs of a sample of app. 1000 work-related travels for public employees purchased through the centralized procurement organization with another sample of app. 1000 work-related travels purchased at the private market place. This quasi-experimental design allows us to compare the price of a large sample of centrally procured travels with the counterfactual situation, where the same travels where purchased in the competitive private travel market.