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Government Outsourcing: Public Contracting with Private Monopoly

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Author Info
Emmanuelle Auriol ()
Pierre M. Picard ()

Additional information is available for the following registered author(s):

Abstract

The paper studies the impact of government budget constraint in a pure adverse selection problem of monopoly regulation. The government maximizes total surplus but incurs some cost of public funds. An alternative to regulation is proposed in which firms are free to enter the market and to choose their price and output levels. However the government can contract ex-post with the private firms. This ex-post contracting set-up allows more flexibility than traditional regulation where government commits to both investment and operation cash-flows. This is especially relevant in case of high technological uncertainties.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 1733.

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Date of creation: 2006
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Handle: RePEc:ces:ceswps:_1733

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Related research
Keywords: privatization; soft-budget constraint; adverse selection; regulation; natural monopoly;

Other versions of this item:

Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Boundaries of Public and Private Enterprise; Privatization; Contracting Out
L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Klaus M. Schmidt, 1995. "Incomplete Contracts and Privatization," Discussion Paper Serie A 480, University of Bonn, Germany.
    Other versions:
  2. Guesnerie, Roger & Laffont, Jean-Jacques, 1984. "A complete solution to a class of principal-agent problems with an application to the control of a self-managed firm," Journal of Public Economics, Elsevier, vol. 25(3), pages 329-369, December. [Downloadable!] (restricted)
  3. JULLIEN, Bruno, 1997. "Participation Constraints in Adverse Selection Models," IDEI Working Papers 67, Institut d'Économie Industrielle (IDEI), Toulouse.
    Other versions:
  4. Janos Kornai & Eric Maskin & Gerard Roland, 2002. "Understanding the Soft Budget Constraint," Economics Working Papers 0019, Institute for Advanced Study, School of Social Science. [Downloadable!]
    Other versions:
  5. Schmidt, Klaus M, 1996. "The Costs and Benefits of Privatization: An Incomplete Contracts Approach," Journal of Law, Economics and Organization, Oxford University Press, vol. 12(1), pages 1-24, April.
  6. Auriol, Emmanuelle & Laffont, Jean-Jacques, 1992. "Regulation by Duopoly," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 1(3), pages 507-33, Fall.
    Other versions:
  7. Boycko, Maxim & Shleifer, Andrei & Vishny, Robert W, 1996. "A Theory of Privatisation," Economic Journal, Royal Economic Society, vol. 106(435), pages 309-19, March. [Downloadable!] (restricted)
  8. Ilya R. Segal, 1998. "Monopoly and Soft Budget Constraint," RAND Journal of Economics, The RAND Corporation, vol. 29(3), pages 596-609, Autumn. [Downloadable!] (restricted)
  9. Snow, Arthur & Warren, Ronald Jr., 1996. "The marginal welfare cost of public funds: Theory and estimates," Journal of Public Economics, Elsevier, vol. 61(2), pages 289-305, August. [Downloadable!] (restricted)
  10. S. Jacobzone, 2000. "Pharmaceutical Policies in OECD Countries: Reconciling Social and Industrial Goals," OECD Labour Market and Social Policy Occasional Papers 40, OECD, Directorate for Employment, Labour and Social Affairs. [Downloadable!]
  11. Kornai, Janos & Weibull, Jorgen W., 1983. "Paternalism, buyers' and sellers' market," Mathematical Social Sciences, Elsevier, vol. 6(2), pages 153-169, November. [Downloadable!] (restricted)
  12. McGuire, Thomas G. & Riordan, Michael H., 1995. "Incomplete information and optimal market structure public purchases from private providers," Journal of Public Economics, Elsevier, vol. 56(1), pages 125-141, January. [Downloadable!] (restricted)
    Other versions:
  13. Laffont, Jean-Jacques & Tirole, Jean, 1986. "Using Cost Observation to Regulate Firms," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 614-41, June. [Downloadable!] (restricted)
    Other versions:
  14. Dewatripont, M & Maskin, E, 1995. "Credit and Efficiency in Centralized and Decentralized Economies," Review of Economic Studies, Blackwell Publishing, vol. 62(4), pages 541-55, October. [Downloadable!] (restricted)
  15. William L. Megginson & Jeffry M. Netter, 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. [Downloadable!] (restricted)
  16. AURIOL, Emmanuelle & PICARD, Pierre, 2004. "Privatizations in Developing Countries and the Government's Budget Constraint," IDEI Working Papers 459, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
  17. Eric S. Maskin, 1999. "Recent Theoretical Work on the Soft Budget Constraint," American Economic Review, American Economic Association, vol. 89(2), pages 421-425, May. [Downloadable!] (restricted)
  18. 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.
    Other versions:
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. JULLIEN, Bruno & POUYET, Jérôme & SAND-ZANTMAN, Wilfried, 2009. "Contracting and Regulation under the Threat of Duplication," IDEI Working Papers 563, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
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