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Whether governments pay more than firms when contracting has been an important and stubbornly vexing question in public management. One challenge has been finding ways to credibly compare the costs of engaging in market transactions with governments versus firms. In this paper, we systematically compare the costs of contracting when governments and firms buy the same product under the same circumstances. Using data from a randomized experiment of Danish firms, we examine selling firms' transaction cost expenditures when selling the same product to governments and other firms. We find that firms estimate spending about 34 percent more on transaction cost expenditures when selling to governments than when selling the same product to firms. Experience in selling to governments is associated with lower transaction cost expenditures, suggesting that learning can reduce firms' costs of selling to governments and firms. [ABSTRACT FROM AUTHOR]

When governments buy products and services, the purchase price reflects not just the seller's production costs, but also the costs of making the exchange occur. How much selling businesses spend and for which activities has important implications for the management activities governments need to execute to increase the likelihood of a successful exchange. This article develops a framework for analyzing businesses' transaction cost spending across varying circumstances of selling products to governments. Using unique data from two original surveys of private businesses in Denmark, we provide a rare portrait of how much sellers spend across several categories of contract management activities. Consistent with extant research, we show that these expenditures are lower when selling products with less risky attributes. We also find lower expenditures when businesses have contracted with governments in the past, a finding that suggests that experience can lower the risks of a failed transaction. These results suggest that governments need to calibrate their purchasing activities not only to the circumstances of the exchange, but also to the businesses' own transaction cost spending. [ABSTRACT FROM AUTHOR]