The substantial body of literature that exists comparing government service provision with contract service (over 100 studies) can be used to estimate the savings that could be generated through contracting out state services. In 1987, the Reason Foundation and the University of Miami's Law and Economics Center, did a thorough review of the literature comparing the cost of government and contract service delivery.[24] Based on this review-as well as case studies of individual jurisdictions, surveys of private firms, and major federal government studies-the researchers arrived at "low" and "high" percentage cost savings rates from privatizing different service functions. The figures are presented in Table 4.

Table 4: Estimated Range of Privatization Cost Savings

This range of savings can be used to make rough estimates of the cost savings that may be realized by privatizing state government services.[25]

The savings estimates for each privatization opportunity identified can be obtained by following the steps in Figure 9.

Figure 9

Cost Savings Estimate Process

1.     Identify the total budgetary expenditures for the relevant state program.

2.     Deduct form these amounts either current or anticipated annual expenditures for already existing or planned major contracting activity.  This is done to ensure that potential contracting savings are not double-counted.

3.     Multiply the lower and higher range savings estimates from the Reason Foundation/University of Miami Law and Economics Center study by the number obtained in step two.  If the government function being considered for privatization is not included in Table 4, savings rates can be based on a number of other studies such as the 1972 Commission on Government Procurement; the 1983 President’s Private Sector Survey o Cost Control; or over 100 studies on cost savings identified in Competition in Government-Financed Services, by John Hilke.

Figures generated from this stage provide only rough estimates or "ballpark" yardsticks of the potential cost savings from privatization. The purpose is simply to get a better idea of the financial impact that privatization could have on different state programs, thereby assisting in evaluating the best opportunities for privatization.


It is more difficult to roughly estimate the possible revenues from asset sales during this stage because there is far less empirical evidence of sales of U.S. government assets to use as a rule of thumb.

One option is to use data from specific asset sales of a similar nature that have previously taken place overseas. This data can be used to make first approximations of the market values of the assets. Example: two small British ports sold in 1990 for $8 per annual ton handled while the 22-port Associated British Ports sold in 1983 and 1984 for $12.07 per ton. This range can be applied to the tonnage handled by a U.S. port in order to generate market value estimates for the port. Additionally, state officials could survey private investors about the value of the asset.