The Role of Competition in Effective Outsourcing: Subsidized Food Distribution in Indonesia

ABSTRACT

Should government service delivery be outsourced to the private sector? If so, how? We conduct the first randomized field experiment on these issues, spread across 572 Indonesian localities. We show that allowing for outsourcing the last mile of a subsidized food delivery program reduced operating costs without sacrificing quality. However, prices paid by citizens were lower only where we exogenously increased competition in the bidding process. Corrupt elites attempted to block reform, but high rents in these areas also increased entry, offsetting this effect. The results suggest that sufficient competition is needed to ensure citizens share the gains from outsourcing.

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Support to this publication is provided by the Australian Government through the MAHKOTA Program.

The findings, interpretations and conclusions herein are those of the author(s) and do not necessarily reflect the views of the Government of Indonesia or the Government of Australia. You are free to copy, distribute and transmit this work, for non-commercial purposes.

Suggested citation: Banerjee, A., Hanna, R., Kyle, J., Olken, B.A., Sumarto, S. 2018. The Role of Competition in Effective Outsourcing: Subsidized Food Distribution in Indonesia. TNP2K Working Paper 1-2018. Jakarta, Indonesia.

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