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Competition in public service provision: the role of not-for-profit providers

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  • Besley, Timothy
  • Malcomson, James M.

Abstract

With public services such as health and education, it is not straightforward for consumers to assess the quality of provision. Many such services are provided by monopoly not-for-profit providers and there is concern that for-profit providers may increase profit at the expense of quality. This paper explores the implications of entry by for-profit providers when there is unobserved quality. The model generates three key policy-relevant insights. First, by developing a novel approach to competition between different organizational forms, it frames the relevant trade-offs precisely. Second, it shows the value of keeping an incumbent not-for-profit as an active provider. Third, it characterizes the optimal payment (or voucher value) to an entrant for each consumer who switches in a way that can be applied empirically.

Suggested Citation

  • Besley, Timothy & Malcomson, James M., 2018. "Competition in public service provision: the role of not-for-profit providers," LSE Research Online Documents on Economics 87517, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:87517
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    Cited by:

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    2. Levaggi, Laura & Levaggi, Rosella, 2020. "Is there scope for mixed markets in the provision of hospital care?," Social Science & Medicine, Elsevier, vol. 247(C).
    3. Bach-Mortensen, Anders Malthe & Goodair, Benjamin & Barlow, Jane, 2022. "Outsourcing and children's social care: A longitudinal analysis of inspection outcomes among English children's homes and local authorities," Social Science & Medicine, Elsevier, vol. 313(C).
    4. Berta, Paolo & Guerriero, Carla & Levaggi, Rosella, 2021. "Hospitals’ strategic behaviours and patient mobility: Evidence from Italy," Socio-Economic Planning Sciences, Elsevier, vol. 77(C).
    5. Gani Aldashev & Esteban Jaimovich & Thierry Verdier, 2023. "The Dark Side of Transparency: Mission Variety and Industry Equilibrium in Decentralised Public Good Provision," The Economic Journal, Royal Economic Society, vol. 133(654), pages 2085-2109.
    6. Mathias Dewatripont & Jean Tirole, 2022. "The Morality of Markets," Working Papers ECARES 2022-35, ULB -- Universite Libre de Bruxelles.
    7. Surana, Mitul & Dongre, Ambrish, 2018. "Too much care? Private health care sector and surgical interventions during childbirth in India," IIMA Working Papers WP 2018-11-01, Indian Institute of Management Ahmedabad, Research and Publication Department.
    8. Propper, Carol & Kunz, Johannes & Staub, Kevin & Winkelmann, Rainer, 2020. "Assessing the Quality of Public Services: Does Hospital Competition Crowd Out the For-Profit Quality Gap?," CEPR Discussion Papers 15045, C.E.P.R. Discussion Papers.
    9. Nadia Burani, 2021. "No mission? No motivation. On hospitals' organizational form and charity care provision," Health Economics, John Wiley & Sons, Ltd., vol. 30(12), pages 3203-3219, December.
    10. Bach-Mortensen, Anders Malthe & Barlow, Jane, 2021. "Outsourced austerity or improved services? A systematic review and thematic synthesis of the experiences of social care providers and commissioners in quasi-markets," Social Science & Medicine, Elsevier, vol. 276(C).
    11. Ram Singh, 2018. "Public–private partnerships vs. traditional contracts for highways," Indian Economic Review, Springer, vol. 53(1), pages 29-63, December.
    12. Levaggi, Laura & Levaggi, Rosella, 2023. "Competition in the provision of hospital care: Are mixed markets a valid alternative?," Economic Modelling, Elsevier, vol. 127(C).
    13. Johannes S. Kunz & Carol Propper & Kevin E. Staub & Rainer Winkelmann, 2023. "Assessing the Quality of Public Services: For-profits, Chains, and Concentration in the Hospital Market," Papers 2023-01, Centre for Health Economics, Monash University.

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    More about this item

    Keywords

    Public services; Competition; Not-for-profit providers;
    All these keywords.

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship

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