Competition, Quality and Contract Compliance: Evidence from Compulsory Competitive Tendering in Local Government in Great Britain, 1987–2000*

The introduction of competition has frequently been found to cause costs to fall. There has, however, been a question as to whether this was partly achieved at the cost of quality. Auction theory predicts prices would fall more the greater the competition to provide the service. There has been some debate about whether the smaller budgets would make contract compliance more difficult. Evidence is found in support of this hypothesis. We also find some evidence that the better recorded performance of the in-house direct service organisations (DSOs) during this period was due to the information advantage they had from being incumbents.