A non-parametric approach to identifying the sources of cost savings arising from competitive tendering

Abstract

The estimation of the factors contributing to the reduction in the costs of service delivery arising from the tendering of specified health and local authority activities presents difficulties for conventional parametric techniques, because of an absence in cardinal measurability. This implies that the debate over whether reductions in costs are primarily due to improvements in productivity or deteriorations in the conditions of incumbent workforces remains highly polemic. Attempts are made to measure the principal sources of cost savings using a non-parametric procedure. In this way a more generalized picture may be presented than has been the case to date. It is found that productivity improvements are the highest ranked source of cost reductions, but reductions in employee conditions and earnings are also highly ranked. It is emphasized that those sources are not independent, and that more research into the primary contributors to increases in productivity is needed.