The Impact of Government Contracting Out on Spending: The Case of Public Education in New Orleans

Abstract

In this study, we start with developing a theoretical framework incorporating theories from the contracting literature and adapt them to the unusual case of nonprofit charter schools, which yields several seemingly novel theoretical insights. In contrast to earlier studies, we use a quasi-experimental research design, the synthetic control group approach, to test the impact of contracting on spending for public schooling in New Orleans. Using detailed information on spending, our empirical analysis shows that contracting increases total operating spending. The additional funds were used to increase administrative spending, including both the number and salaries of administrators. Fewer resources were devoted to instruction. Although the number of teachers was largely unchanged, per-teacher salaries and benefits dropped. We utilize the results to complement the theory of contracting with regard to outsourcing based on funding formulas and the mix of inputs chosen by contractors.