When quality today affects service needs tomorrow
AbstractQuality in the human services has long term effects. Reduced quality of service now increases the service recipients’ future service needs and other social costs. This paper shows that such effects should be considered when a government designs contracts with a for-profit service provider. If the contract relies on verifiable information only, short contract periods fail to give the provider proper incentives to internalize future effects of quality. Long term contracts are problematic if the effects of quality are not over time indicated by verifiable measures. Relational contracts seem more robust to changes in the model’s informational assumptions and rely on trust to deal with holdups. Long term quality effects matter for the relative merits of intergrated provision and contracting out, and may create adverse quality incentives if a for-profit provider has market power.
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Bibliographic InfoPaper provided by Oslo University, Department of Economics in its series Memorandum with number 18/2004.
Length: 30 pages
Date of creation: 27 Oct 2004
Date of revision:
Contact details of provider:
Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Phone: 22 85 51 27
Fax: 22 85 50 35
Web page: http://www.oekonomi.uio.no/indexe.html
More information through EDIRC
human services; quality of service; for-profit;
Find related papers by JEL classification:
- D69 - Microeconomics - - Welfare Economics - - - Other
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