The Research On Contractors Selection Of Public Service Outsourcing Based On A Two-stage Screening Model

With the rise of public service outsourcing, the risks associated with outsourcingrelationships become a serious challenge to government·s governance capabilities.Whether the government can make the right choice or not when choosing itscontractor influences the governance and the success probability of the public serviceoutsourcing. To some extent, the effectiveness to avoid contractor·s adverse selectionproblems in selection process has become the government·s key factor in decidingwhether to outsource or not, and whether the outsourcing can success or not. However,in real practice, on the one hand, the existing government contractor selectionmechanism cannot screen the information of private contractors fully; on the otherhand, the contractors also have strong motivation to hide their own type. These entiremake adverse selection problems have greatly hindered the development of the publicservice outsourcing practice.Based on the related research and theory, this paper firstly discussed the adverseselection risk the government faced and then established a two-stage screeningmechanism to reduce adverse selection in public service outsourcing. Under thismechanism, the government can carry out initial screening by using a combination ofcontractor access thresholdμ and bidding price capμ; by providing the contractorswith a series of contracts which differ in payment methods, the government can screenthe contractors for a second time. Based on the process model, this paper then built apayment mechanism model, which further analyzed the characteristics of the optimalpayment mechanism. To make the mechanism work, the bidding price cap must equalto the sum of the highest cost which the government can stand and the contractors·reservation utility, and the contracts must have different reward coefficient andpenalty coefficient. In the end, this paper discussed the problems existed and ways toimprove in recent public service outsourcing practice by studying into the case ofGuangzhou·s road greening and park maintenance service outsourcing. The conlusionof this paper can help the government to improve its screening ability.