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Contracting out public service provision to not-for-profit firms

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  • John Bennett
  • Elisabetta Iossa

Abstract

In an incomplete-contract setting, we analyse the contracting out of public service provision, comparing the performance of for-profit (FP) and not-for-profit (NP) firms. Two institutional arrangements are considered, control rights lying either with the firm (PPP) or the government (traditional procurement). We show that provision by an NP may be associated with overinvestment in quality improvement, but that under conditions that restrain this overinvestment, the NP may yield greater welfare than obtains with FP-provision. Although none of the four possible arrangements is preferable under all conditions, the introduction of PPP has enhanced the scope for advantageous provision by an NP. Copyright 2010 Oxford University Press 2009 All rights reserved, Oxford University Press.

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Bibliographic Info

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

Volume (Year): 62 (2010)
Issue (Month): 4 (October)
Pages: 784-802

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Handle: RePEc:oup:oxecpp:v:62:y:2010:i:4:p:784-802

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References

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  1. John Bennett & Elisabetta Iossa, 2004. "Contracting Out Public Service Provision to Non-for-profit Firms," Economics and Finance Discussion Papers, Economics and Finance Section, School of Social Sciences, Brunel University 04-12, Economics and Finance Section, School of Social Sciences, Brunel University.
  2. Tim Besley & Maitreesh Ghatak, 2005. "Competition and incentives with motivated agents," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 928, London School of Economics and Political Science, LSE Library.
  3. Timothy Besley & Maitreesh Ghatak, 2001. "Government Versus Private Ownership Of Public Goods," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 116(4), pages 1343-1372, November.
  4. John Bennett & Elisabetta Iossa, 2004. "Building and Managing Facilities for Public Services," Public Policy Discussion Papers, Economics and Finance Section, School of Social Sciences, Brunel University 02-08, Economics and Finance Section, School of Social Sciences, Brunel University.
  5. Edward L. Glaeser & Andrei Shleifer, 1998. "Not-For-Profit Entrepreneurs," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 1852, Harvard - Institute of Economic Research.
  6. John Bennett & Elisabetta Iossa & Gabriella Legrenzi, 2003. "The Role of Commercial Non-profit Organizations in the Provision of Public Services," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 19(2), pages 335-347, Summer.
  7. Oliver Hart, 2003. "Incomplete Contracts and Public Ownership: Remarks, and an Application to Public-Private Partnerships," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 113(486), pages C69-C76, March.
  8. Schmitz, Patrick W., 2000. "Partial Privatization and Incomplete Contracts: The Proper Scope of Government Reconsidered," MPRA Paper 13447, University Library of Munich, Germany.
  9. Bos, Dieter & De Fraja, Gianni, 2002. "Quality and outside capacity in the provision of health services," Journal of Public Economics, Elsevier, Elsevier, vol. 84(2), pages 199-218, May.
  10. Bilodeau, Marc & Slivinski, Al, 1996. "Volunteering nonprofit entrepreneurial services," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 31(1), pages 117-127, October.
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Cited by:
  1. John Bennett & Elisabetta Iossa, 2005. "Contracting Out Public Service Provision to Not-For-Profit Firms," The Centre for Market and Public Organisation, Department of Economics, University of Bristol, UK 05/124, Department of Economics, University of Bristol, UK.
  2. Iossa, Elisabetta & Martimort, David, 2011. "Risk Allocation and the Costs and Benefits of Public-Private Partnerships," CEPREMAP Working Papers (Docweb), CEPREMAP 1104, CEPREMAP.
  3. Capuno, Joseph J., 2014. "Public–Private Service Delivery Arrangements and Incentive Schemes in Developing Asia," ADB Economics Working Paper Series, Asian Development Bank 387, Asian Development Bank.
  4. Athias, Laure & Saussier, Stéphane, 2007. "Contractual flexibility or rigidity for public private partnerships? Theory and evidence from infrastructure concession contracts," MPRA Paper 10541, University Library of Munich, Germany.
  5. Nelarine Cornelius & Mathew Todres & Shaheena Janjuha-Jivraj & Adrian Woods & James Wallace, 2008. "Corporate Social Responsibility and the Social Enterprise," Journal of Business Ethics, Springer, Springer, vol. 81(2), pages 355-370, August.

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