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Comments on: Insiders vs outsiders http://www.tvhe.co.nz/2007/09/17/insiders-vs-outsiders/ The Visible Hand in Economics Tue, 18 Sep 2007 07:48:36 +0000 hourly 1 https://wordpress.org/?v=6.9.4 By: Matt Nolan http://www.tvhe.co.nz/2007/09/17/insiders-vs-outsiders/#comment-317 Tue, 18 Sep 2007 07:48:36 +0000 http://tvhe.wordpress.com/2007/09/17/insiders-vs-outsiders/#comment-317 Consultants have to have the project finished by there estimate though, or they get a bad reputation. At my work consultants would rather work weekends than miss a deadline. I don’t think that government departments engender that kind of urgency 😉

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By: rauparaha http://www.tvhe.co.nz/2007/09/17/insiders-vs-outsiders/#comment-316 Tue, 18 Sep 2007 05:26:14 +0000 http://tvhe.wordpress.com/2007/09/17/insiders-vs-outsiders/#comment-316 That’s probably true. I’d like to know whether consultants’ estimates of their completion date are any more accurate than employees’ estimates. I wonder if the competition to estimate quicker completion and lower costs increases the optimism of their estimates and thus makes them even more inaccurate than insiders’ estimates.

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By: Matt Nolan http://www.tvhe.co.nz/2007/09/17/insiders-vs-outsiders/#comment-315 Tue, 18 Sep 2007 03:13:58 +0000 http://tvhe.wordpress.com/2007/09/17/insiders-vs-outsiders/#comment-315 I agree with these points, but I think there is also another reason why contracting to outsiders can be a good idea.

When you offer a contract on open tender you force consultants to compete to get the contract. They are willing to undercut each other on price and offer to do the job as quickly as possible. If the project was performed in house, there would be no competitive bargaining process, the employee is the monopoly provider. In this case the employee extracts some surplus by taking longer than is efficient to do the project.

In a sense we have an agency problem. The government employees know that their effort is not observable, so take longer to finish a project. By hiring consultants you get past this agency problem, as they are forced to join a competitive market to get the project in the first place.

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By: Economics Info » Blog Archive » Insiders vs outsiders http://www.tvhe.co.nz/2007/09/17/insiders-vs-outsiders/#comment-314 Mon, 17 Sep 2007 16:08:53 +0000 http://tvhe.wordpress.com/2007/09/17/insiders-vs-outsiders/#comment-314 […] Original post by rauparaha […]

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