A Transaction Cost Economics View of DoD Outsourcing

Abstract

Many goods and services required for government operations can be provided through commercial markets. Public officials, therefore, face a number of make-or-buy decisions. Transactions Cost Economics (TCE) offers a useful foundation for characterizing make-or-buy decisions, which this paper explores. Our dual objective is to synthesize key principles of TCE and to apply TCE to federal outsourcing. One especially useful insight is that transaction costs vary widely, and depend in known ways upon the attributes of the outsourcing action. This means, among other things, that one size should not fit all in outsourcing decision processes.