Cost Differences in Public and Private Shipyards
Abstract
The repair of naval vessels is one type of production which is performed in both the public and private sector. Input prices are not the same in naval and private shipyards; in particular, wages are higher and the cost of capital is lower in naval shipyards. In this paper, an attempt was made to determine how these differences in factor prices affect the relative cost of overhauls, and some possible reasons for differences in overhaul costs. First, a cost function was estimated, using data on overhauls of the Sturgeon class of nuclear attack submarines. The regression coefficients were then used to predict costs in public and private yards holding the relevant variables constant. The results support the hypothesis that, for the type of work studied, production costs were higher in naval shipyards than in private shipyards. Among the likely reasons for the difference in production costs are (a) higher wages; and (b) lower efficiency in naval shipyards. Further work is needed to determine whether there is also a difference in overhaul quality. The time spent in overhaul is important because of its implications for readiness. We found that overhauls in private shipyards took significantly longer than those in naval yards. When determining where to assign overhauls, the Navy must weigh this difference in time costs against the difference in production costs.
Document Details
- Document Type
- Technical Report
- Publication Date
- Jan 01, 1981
- Accession Number
- ADA102877
Entities
People
- Marianne Bowes