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Mixing Private and Public Service Providers and Specialization

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Author Info

  • Hans Gersbach
  • Maija Halonen-Akatwijuka

    ()

Abstract

We analyze the reform of public sector welfare services such as education. In this paper we compare a mix of private and a public service provider with full privatization. In both cases the suppliers specialize in serving particular customer types. In the mixed institution the government sets the public fee such that service quality does not deteriorate and the price of the private supplier is anchored at comparatively low level. Under full privatization, however, prices escalate to the highest possible level. As a consequence, consumer welfare is higher with a mixed institution – unless the proportion of low-cost customers is high. The mixed institution can also accommodate wealth constraints of customers to some extent.

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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 05/131.

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Length: 40 pages
Date of creation: Sep 2005
Date of revision:
Handle: RePEc:bri:cmpowp:05/131

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Postal: 2 Priory Road, Bristol, BS8 1TX
Phone: 0117 33 10799
Fax: 0117 33 10705
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Web page: http://www.bris.ac.uk/cmpo/
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Keywords: private and public suppliers; specialization; welfare services; mixed institutions;

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References

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  1. Ellis, Randall P., 1998. "Creaming, skimping and dumping: provider competition on the intensive and extensive margins1," Journal of Health Economics, Elsevier, vol. 17(5), pages 537-555, October.
  2. Besley, Timothy J. & Ghatak, Maitreesh, 2004. "Competition and Incentives with Motivated Agents," CEPR Discussion Papers 4641, C.E.P.R. Discussion Papers.
  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. Francois, Patrick, 2000. "'Public service motivation' as an argument for government provision," Journal of Public Economics, Elsevier, vol. 78(3), pages 275-299, November.
  5. Roland Benabou & Jean Tirole, 2003. "Intrinsic and Extrinsic Motivation," Review of Economic Studies, Wiley Blackwell, vol. 70(3), pages 489-520, 07.
  6. George A. Akerlof & Rachel E. Kranton, 2005. "Identity and the Economics of Organizations," Journal of Economic Perspectives, American Economic Association, vol. 19(1), pages 9-32, Winter.
  7. Oliver Hart, 2003. "Incomplete Contracts and Public Ownership: Remarks, and an Application to Public-Private Partnerships," Economic Journal, Royal Economic Society, vol. 113(486), pages C69-C76, March.
  8. Epple, Dennis & Romano, Richard E, 1998. "Competition between Private and Public Schools, Vouchers, and Peer-Group Effects," American Economic Review, American Economic Association, vol. 88(1), pages 33-62, March.
  9. Shleifer, Andrei & Vishny, Robert W, 1994. "Politicians and Firms," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 995-1025, November.
  10. Joseph P. Newhouse, 1996. "Reimbursing Health Plans and Health Providers: Efficiency in Production versus Selection," Journal of Economic Literature, American Economic Association, vol. 34(3), pages 1236-1263, September.
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Cited by:
  1. Maija Halonen-Akatwijuka & Carol Propper, 2012. "Competition, Equity and Quality in Health CareAbstract: In this paper we focus on the implications of consumer heterogeneity for whether competition will improve outcomes in health care markets. We sh," The Centre for Market and Public Organisation 12/296, Department of Economics, University of Bristol, UK.

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