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Delegation of Contracting in the Private Provision of Public Services

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  • Elisabetta Iossa

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Abstract

We use an incomplete-contract approach to compare contracting out by a public sector agency with the delegation of contracting out to a public-private partnership (PPP) that is a joint venture between private and sector agents. The PPP maximizes a linear combination of profit and social benefit. Such delegation may be desirable to curb innovations that reduce the cost of provision but also reduce social benefit. Delegation may be undesirable for innovations that increase social benefit but also raise costs. Our results are explained in terms of the shadow cost of public funds and the negotiating stance of the PPP.

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File URL: http://www.bris.ac.uk/Depts/CMPO/workingpapers/wp125.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Bristol, UK in its series The Centre for Market and Public Organisation with number 05/125.

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Length: 22 pages
Date of creation: Apr 2005
Date of revision:
Handle: RePEc:bri:cmpowp:05/125

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Keywords: delegation; Private Finance Initiative; Public Private Partnership; Public Service Provision;

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References

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  1. Schmitz, Patrick W., 2000. "Partial Privatization and Incomplete Contracts: The Proper Scope of Government Reconsidered," MPRA Paper 13447, University Library of Munich, Germany.
  2. Bennett, John & Iossa, Elisabetta, 2006. "Building and managing facilities for public services," Journal of Public Economics, Elsevier, vol. 90(10-11), pages 2143-2160, November.
  3. Hart, Oliver & Shleifer, Andrei & Vishny, Robert W, 1997. "The Proper Scope of Government: Theory and an Application to Prisons," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1127-61, November.
  4. Fershtman, Chaim & Judd, Kenneth L & Kalai, Ehud, 1991. "Observable Contracts: Strategic Delegation and Cooperation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(3), pages 551-59, August.
  5. Bester, Helmut & Sakovics, Jozsef, 2001. "Delegated bargaining and renegotiation," Journal of Economic Behavior & Organization, Elsevier, vol. 45(4), pages 459-473, August.
  6. Timothy Besley & Maitreesh Ghatak, 2001. "Government Versus Private Ownership Of Public Goods," The Quarterly Journal of Economics, MIT Press, vol. 116(4), pages 1343-1372, November.
  7. J. Luis Guasch & Jean-Jacques Laffont & Stephane Straub, 2004. "Renegotiation of Concession Contracts in Latin America," ESE Discussion Papers 103, Edinburgh School of Economics, University of Edinburgh.
  8. Eshien Chong & Freddy Huet & Stéphane Saussier & Faye Steiner, 2006. "Public-Private Partnerships and Prices: Evidence from Water Distribution in France," Review of Industrial Organization, Springer, vol. 29(1), pages 149-169, September.
  9. Guasch, Jose Luis & Laffont, Jean-Jacques & Straub, Stéphane, 2005. "Concessions of Infrastructure in Latin America: Goverment-Led Renegotiation," IDEI Working Papers 372, Institut d'Économie Industrielle (IDEI), Toulouse.
  10. Bos, Dieter & De Fraja, Gianni, 2002. "Quality and outside capacity in the provision of health services," Journal of Public Economics, Elsevier, vol. 84(2), pages 199-218, May.
  11. Paul A. Grout & Margaret Stevens, 2003. "The Assessment: Financing and Managing Public Services," Oxford Review of Economic Policy, Oxford University Press, vol. 19(2), pages 215-234, Summer.
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Cited by:
  1. Hoppe, Eva I. & Kusterer, David J. & Schmitz, Patrick W., 2013. "Public–private partnerships versus traditional procurement: An experimental investigation," Journal of Economic Behavior & Organization, Elsevier, vol. 89(C), pages 145-166.
  2. Hoppe, Eva I. & Schmitz, Patrick W., 2008. "Public Versus Private Ownership: Quantity Contracts and the Allocation of Investment Tasks," CEPR Discussion Papers 7056, C.E.P.R. Discussion Papers.
  3. Elisabetta Iossa & David Martimort, 2008. "The Simple Micro-Economics of Public-Private Partnerships," The Centre for Market and Public Organisation 08/199, Department of Economics, University of Bristol, UK.
  4. Hoppe, Eva I. & Schmitz, Patrick W., 2012. "Public-private partnerships versus traditional procurement: Innovation incentives and information gathering," MPRA Paper 41966, University Library of Munich, Germany.
  5. Alberto Nucciarelli & Bert M. Sadowski & Paola O. Achard, 2010. "Emerging models of public-private interplay for European broadband access: Evidence from the Netherlands and Italy," Working Papers 10-03, Eindhoven Center for Innovation Studies, revised May 2010.

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