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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-minimising public firm. Workers in the economy are heterogeneous in their motivation to work in the sector. In line with empirical findings, our model implies that firms in the competitive market provide stronger monetary incentives to workers, 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 liberalisation may therefore be limited.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1095.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_1095

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Keywords: liberalisation; monopsony power; incentive wages; intrinsic motivation;

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  1. Jeon, Doh-Shin & Laffont, Jean-Jacques, 1999. "The Efficient Mechanism for Downsizing the Public Sector," World Bank Economic Review, World Bank Group, World Bank Group, vol. 13(1), pages 67-88, January.
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Citations

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Cited by:
  1. Josse Delfgaauw & Robert Dur, 2004. "Incentives and Workers’ Motivation in the Public Sector," CESifo Working Paper Series, CESifo Group Munich 1223, CESifo Group Munich.
  2. Robert Dur & Amihai Glazer, 2004. "Optimal Incentive Contracts For a Worker Who Envies His Boss," CESifo Working Paper Series, CESifo Group Munich 1282, CESifo Group Munich.
  3. Matteo Bassi & Marco Pagnozzi & Salvatore Piccolo, 2013. "Optimal Contracting with Altruism and Reciprocity," CSEF Working Papers, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy 342, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  4. Roy Thurik & Jolanda Hessels & José Maria Millán & Rafael Aguado, 2011. "Determinants of job satisfaction: A European comparison of sel femployed and paid employees," Scales Research Reports, EIM Business and Policy Research H201106, EIM Business and Policy Research.
  5. Josse Delfgaauw & Robert Dur, 2003. "Signaling and Screening of Workers' motivation," CESifo Working Paper Series, CESifo Group Munich 1099, CESifo Group Munich.
  6. Kosfeld, Michael & von Siemens, Ferdinand, 2008. "Worker Self-Selection and the Profits from Cooperation," IZA Discussion Papers 3881, Institute for the Study of Labor (IZA).
  7. Margaretha Buurman & Robert Dur, 2008. "Incentives and the Sorting of Altruistic Agents into Street-Level Bureaucracies," Tinbergen Institute Discussion Papers, Tinbergen Institute 08-113/1, Tinbergen Institute, revised 14 Oct 2010.
  8. F. Barigozzi & N. Burani, 2013. "Bidimensional screening with intrinsically motivated workers," Working Papers wp866, Dipartimento Scienze Economiche, Universita' di Bologna.

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