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Public versus private production and economies of scale

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Author Info

  • Henrik Christoffersen

    ()

  • Martin Paldam

    ()

  • Allan Würtz

    ()

Abstract

The cost of producing the same good often differs substantially for public and private producers. We investigate the effect of organization in a case where the production technology is simple: The cleaning of Danish schools. Three forms of organization are used: Decentral municipal, central municipal or private. For small schools the organizational form has little impact on cost. For larger schools decentral municipal production is the most expensive. On average centralization reduces costs by 5%, while privatization reduces costs by 30%. Similar cost differences are reported in the literature for other cases, but it is a new result that the cost differences are due to economies of scale. Public choice theories predict that cost differences are due to ownership or competition. We find evidence that both theories help explain the cost differences. Copyright Springer Science+Business Media, Inc. 2007

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File URL: http://hdl.handle.net/10.1007/s11127-006-9086-0
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Bibliographic Info

Article provided by Springer in its journal Public Choice.

Volume (Year): 130 (2007)
Issue (Month): 3 (March)
Pages: 311-328

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Handle: RePEc:kap:pubcho:v:130:y:2007:i:3:p:311-328

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Web page: http://www.springerlink.com/link.asp?id=100332

Related research

Keywords: Competition; Cost function; Non-parametric regression; Ownership; Scale effects;

References

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  1. Francis Vella, 1998. "Estimating Models with Sample Selection Bias: A Survey," Journal of Human Resources, University of Wisconsin Press, vol. 33(1), pages 127-169.
  2. Christoffersen, Henrik & Paldam, Martin, 2003. " Markets and Municipalities: A Study of the Behavior of the Danish Municipalities," Public Choice, Springer, vol. 114(1-2), pages 79-102, January.
  3. Richard Blundell & Alan Duncan, 1998. "Kernel Regression in Empirical Microeconomics," Journal of Human Resources, University of Wisconsin Press, vol. 33(1), pages 62-87.
  4. Domberger, Simon & Jensen, Paul, 1997. "Contracting Out by the Public Sector: Theory, Evidence, Prospects," Oxford Review of Economic Policy, Oxford University Press, vol. 13(4), pages 67-78, Winter.
  5. Adonis Yatchew, 1998. "Nonparametric Regression Techniques in Economics," Journal of Economic Literature, American Economic Association, vol. 36(2), pages 669-721, June.
  6. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
  7. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
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Citations

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Cited by:
  1. Niklas Potrafke, 2010. "Does government ideology influence deregulation of product markets? Empirical evidence from OECD countries," Public Choice, Springer, vol. 143(1), pages 135-155, April.
  2. Andersson, Fredrik & Jordahl, Henrik, 2011. "Outsourcing Public Services: Ownership, Competition, Quality and Contracting," Working Papers 2011:20, Lund University, Department of Economics.
  3. Henrik Christoffersen & Martin Paldam, 2004. "Privatization in Denmark, 1980-2002," CESifo Working Paper Series 1127, CESifo Group Munich.

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