The Impact of Outsourcing on Efficiency in Rural and Nonrural School Districts: The Case of Pupil Transportation in Minnesota

Government finance reforms in the United States have encouraged public entities to focus on their core mission and to use outsourcing to improve efficiency, yet little is known about whether these reforms impact rural areas differently than nonrural areas. This paper analyzes the provision of one service that is provided either in-house by school districts or outsourced— pupil transportation—and presents a variable cost function for pupil transportation for individual districts in the state of Minnesota. In-house provision of transportation was not shown to be more costly than outsourcing in either rural or nonrural locations; however, small rural districts were much more likely to provide pupil transportation in-house than other types of districts. Large contractors may seek the most profitable contracts in urban and suburban areas, while showing little interest in contracting opportunities in rural school districts