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From Public Monopsony to Competitive Market: More Efficiency but Higher Prices

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  • Josse Delfgaauw

    ()
    (Faculty of Economics, Erasmus Universiteit Rotterdam)

  • Robert A.J. Dur

    ()
    (Faculty of Economics, Erasmus Universiteit Rotterdam)

Abstract

This paper examines the consequences of creating a fully competitive market in a sector previously dominated by a cost-minimizing public firm. Workers in the economy are heterogeneous in their intrinsic motivation to work in the sector. In line with empirical findings, our model implies that firms in the competitive market 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 liberalization may therefore be limited. This discussion paper has resulted in a publication in the Oxford Economic Papers . (2009, vol. 63, issue 3, pp. 586-602.)

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 02-118/1.

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Date of creation: 02 Dec 2002
Date of revision: 31 Jan 2008
Handle: RePEc:dgr:uvatin:20020118

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Web page: http://www.tinbergen.nl

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

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  1. Francois, Patrick, 2005. "Making A Difference," CEPR Discussion Papers 5301, C.E.P.R. Discussion Papers.
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  8. Josse Delfgaauw & Robert A.J. Dur, 2002. "Signaling and Screening of Workers' Motivation," Tinbergen Institute Discussion Papers 02-050/3, Tinbergen Institute, revised 04 Mar 2005.
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Citations

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Cited by:
  1. Buurman, Margaretha & Dur, Robert, 2008. "Incentives and the Sorting of Altruistic Agents into Street-Level Bureaucracies," IZA Discussion Papers 3847, Institute for the Study of Labor (IZA).
  2. Josse Delfgaauw & Robert A.J. Dur, 2002. "Signaling and Screening of Workers' Motivation," Tinbergen Institute Discussion Papers 02-050/3, Tinbergen Institute, revised 04 Mar 2005.
  3. Michael Kosfeld & Ferdinand A. von Siemens, 2009. "Worker Self-Selection and the Profits from Cooperation," Journal of the European Economic Association, MIT Press, vol. 7(2-3), pages 573-582, 04-05.
  4. Josse Delfgaauw & Robert Dur, 2004. "Incentives and Workers' Motivation in the Public Sector," Tinbergen Institute Discussion Papers 04-060/1, Tinbergen Institute.
  5. Bassi, Matteo & Pagnozzi, Marco & Piccolo, Salvatore, 2014. "Optimal contracting with altruism and reciprocity," Research in Economics, Elsevier, vol. 68(1), pages 27-38.
  6. Robert Dur & Amihai Glazer, 2004. "Optimal Incentive Contracts For a Worker Who Envies His Boss," CESifo Working Paper Series 1282, CESifo Group Munich.
  7. 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 H201106, EIM Business and Policy Research.
  8. F. Barigozzi & N. Burani, 2013. "Intrinsic Motivation in the Labor Market: Not Too Much, Thank You," Working Papers wp866, Dipartimento Scienze Economiche, Universita' di Bologna.

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