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From public monopsony to competitive market: more efficiency but higher prices

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  • Josse Delfgaauw
  • Robert Dur

Abstract

This paper examines the consequences of creating a fully competitive market in a sector previously dominated by a cost-minimizing public firm. Workers in the economy are heterogeneous in their intrinsic motivation to work in the sector. In line with empirical findings, our model implies that firms in the competitive market reach higher productivity and employ less workers than the public firm. Allocative efficiency therefore increases. Nevertheless, prices of the sector's output rise as competition between private firms for the best motivated workers leads to higher wage cost than under the public monopsony. Political support for liberalization may therefore be limited. Copyright 2009 , Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 61 (2009)
Issue (Month): 3 (July)
Pages: 586-602

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Handle: RePEc:oup:oxecpp:v:61:y:2009:i:3:p:586-602

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References

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  1. Boycko, Maxim & Shleifer, Andrei & Vishny, Robert W, 1996. "A Theory of Privatisation," Economic Journal, Royal Economic Society, vol. 106(435), pages 309-19, March.
  2. Rafael La Porta & Florencio Lopez-de-Silane, 1997. "The Benefits of Privatization: Evidence from Mexico," NBER Working Papers 6215, National Bureau of Economic Research, Inc.
  3. Oliver Hart & Andrei Shleifer & Robert Vishny, 1996. "The Proper Scope of Government: Theory and an Application to Prisons," Harvard Institute of Economic Research Working Papers 1778, Harvard - Institute of Economic Research.
  4. Josse Delfgaauw & Robert Dur, 2003. "Signaling and Screening of Workers' motivation," CESifo Working Paper Series 1099, CESifo Group Munich.
  5. Francois, Patrick, 2000. "'Public service motivation' as an argument for government provision," Journal of Public Economics, Elsevier, vol. 78(3), pages 275-299, November.
  6. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  7. Bhaskar, V. & Manning, A. & To, T., 2002. "Oligopsony and monopsonistic competition in labor markets," Open Access publications from University College London http://discovery.ucl.ac.u, University College London.
  8. Haskel, Jonathan & Szymanski, Stefan, 1993. "Privatization, Liberalization, Wages and Employment: Theory and Evidence for the UK," Economica, London School of Economics and Political Science, vol. 60(238), pages 161-81, May.
  9. Booth, Alison L & Zoega, Gylfi, 2002. "If You're so Smart, Why Aren't You Rich? Wage Inequality with Heterogenous Workers?," CEPR Discussion Papers 3190, C.E.P.R. Discussion Papers.
  10. Megginson, William L & Nash, Robert C & van Randenborgh, Matthias, 1994. " The Financial and Operating Performance of Newly Privatized Firms: An International Empirical Analysis," Journal of Finance, American Finance Association, vol. 49(2), pages 403-52, June.
  11. Jeffry M. Netter & William L. Megginson, 2001. "From State to Market: A Survey of Empirical Studies on Privatization," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 321-389, June.
  12. Laffont, Jean-Jacques & Tirole, Jean, 1991. "Privatization and Incentives," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 84-105, Special I.
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Cited by:
  1. Josse Delfgaauw & Robert Dur, 2008. "Incentives and Workers' Motivation in the Public Sector," Economic Journal, Royal Economic Society, vol. 118(525), pages 171-191, 01.
  2. Robert Dur & Amihai Glazer, 2004. "Optimal Incentive Contracts For a Worker Who Envies His Boss," CESifo Working Paper Series 1282, CESifo Group Munich.
  3. Buurman, Margaretha & Dur, Robert, 2008. "Incentives and the Sorting of Altruistic Agents into Street-Level Bureaucracies," IZA Discussion Papers 3847, Institute for the Study of Labor (IZA).
  4. F. Barigozzi & N. Burani, 2013. "Intrinsic Motivation in the Labor Market: Not Too Much, Thank You," Working Papers wp866, Dipartimento Scienze Economiche, Universita' di Bologna.
  5. Margaretha Buurman & Robert Dur, 2008. "Incentives and the Sorting of Altruistic Agents into Street-Level Bureaucracies," Tinbergen Institute Discussion Papers 08-113/1, Tinbergen Institute, revised 14 Oct 2010.
  6. Josse Delfgaauw & Robert Dur, 2004. "Incentives and Workers' Motivation in the Public Sector," Tinbergen Institute Discussion Papers 04-060/1, Tinbergen Institute.
  7. Josse Delfgaauw & Robert Dur, 2003. "Signaling and Screening of Workers' motivation," CESifo Working Paper Series 1099, CESifo Group Munich.

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