Monitoring and Productive Efficiency in Public and Private Firms
AbstractThe paper compares productive efficiency in public and private firms. We study a principal-agent model in which the firm's manager is privately informed about a cost parameter and exerts unobservable cost reducing effort, while the owner can conduct costly audits to obtain information about the firm's cost. Without auditing, managerial effort (and therefore production efficiency) is strictly higher under public governance with a benevolent government. However, if auditing is possible, a profit-maximizing private owner always audits at least as frequently as a public principal. For small auditing costs, we find that monitoring decisions, managerial effort and welfare under both governance structures coincide. Conversely, when audits becomes more expensive, the public (but not the private) owner refrains from monitoring, and the private firm may produce more cost efficiently.
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Bibliographic InfoArticle provided by Mohr Siebeck, Tübingen in its journal FinanzArchiv.
Volume (Year): 58 (2001)
Issue (Month): 2 (February)
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Web page: http://www.mohr.de/fa
Postal: Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany
Find related papers by JEL classification:
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
- L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Schmitz, Patrick W., 2000.
"Partial Privatization and Incomplete Contracts: The Proper Scope of Government Reconsidered,"
13447, University Library of Munich, Germany.
- Patrick W. Schmitz, 2000. "Partial Privatization and Incomplete Contracts: The Proper Scope of Government Reconsidered," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 57(4), pages 394-, August.
- Kessler, Anke S., 2000. "On Monitoring and Collusion in Hierarchies," Journal of Economic Theory, Elsevier, vol. 91(2), pages 280-291, April.
- Laura Di Giorgio & Massimo Filippini & Giuliano Masiero, 2012. "The impact of the institutional form on the cost efficiency of nursing homes," Quaderni della facoltÃ di Scienze economiche dell'UniversitÃ di Lugano 1203, USI Università della Svizzera italiana.
- Dalen, Dag Morten & Moen, Espen R, 2003. "The Proper Scope of Governments When Costs are Contractible," CEPR Discussion Papers 3992, C.E.P.R. Discussion Papers.
- Matthew Ellman, 2006. "Does privatising public service provision reduce accountability?," Economics Working Papers 997, Department of Economics and Business, Universitat Pompeu Fabra.
- Bischoff, Ivo, 2002. "Efficiency-enhancing effects of private and collective enterprises in transitional China," Discussion Papers 9, Justus Liebig University Giessen, Center for international Development and Environmental Research (ZEU).
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