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Government Outsourcing: Public Contracting with Private Monopoly

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  • Auriol, Emmanuelle
  • Picard, Pierre

Abstract

The article studies the impact of the government budget constraint on the regulation of natural monopolies in adverse selection contexts. The government maximises total surplus but incurs some cost of public funds "à la" Laffont and Tirole (1993). Government outsourcing is proposed as an alternative to regulation in which firms freely enter the market and choose their prices and output levels. However the government can contract "ex post" with the private firms. This "ex post" contracting set-up allows more flexibility than regulation where governments commit to both investment and operation cash-flows. This is especially relevant in case of high technological uncertainties. Copyright � The Author(s). Journal compilation � Royal Economic Society 2009.

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Bibliographic Info

Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 382.

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Date of creation: Jun 2008
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Publication status: Published in The Economic Journal, vol.�119, n°540, octobre 2009, p.�1464-1493.
Handle: RePEc:ide:wpaper:5223

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References

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  1. Jullien, Bruno, 1997. "Participation Constraints in Adverse Selection Models," IDEI Working Papers 67, Institut d'Économie Industrielle (IDEI), Toulouse.
  2. Mathias Dewatripont & Eric Maskin, 1995. "Credit and efficiency in centralized and decentralized economies," ULB Institutional Repository 2013/9603, ULB -- Universite Libre de Bruxelles.
  3. Janos Kornai & Eric Maskin & Gerard Roland, 2002. "Understanding the Soft Budget Constraint," Economics Working Papers 0019, Institute for Advanced Study, School of Social Science.
  4. 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.
  5. 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.
  6. 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.
  7. Auriol, Emmanuelle & Laffont, Jean-Jacques, 1992. "Regulation by Duopoly," IDEI Working Papers 20, Institut d'Économie Industrielle (IDEI), Toulouse.
  8. Jeffry M. Netter & William L. Megginson, 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.
  9. Schmidt, Klaus M., 1996. "Incomplete contracts and privatization," European Economic Review, Elsevier, vol. 40(3-5), pages 569-579, April.
  10. 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.
  11. Jean-Jacques Laffont & Jean Tirole, 1991. "Privatization and Incentives," Working papers 572, Massachusetts Institute of Technology (MIT), Department of Economics.
  12. 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.
  13. Stéphane Jacobzone, 2000. "Pharmaceutical Policies in OECD Countries: Reconciling Social and Industrial Goals," OECD Labour Market and Social Policy Occasional Papers 40, OECD Publishing.
  14. David P. Baron & Roger B. Myerson, 1979. "Regulating a Monopolist with Unknown Costs," Discussion Papers 412, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  15. Kornai, Janos & Weibull, Jorgen W., 1983. "Paternalism, buyers' and sellers' market," Mathematical Social Sciences, Elsevier, vol. 6(2), pages 153-169, November.
  16. 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.
  17. Boycko, Maxim & Shleifer, Andrei & Vishny, Robert W, 1996. "A Theory of Privatisation," Economic Journal, Royal Economic Society, vol. 106(435), pages 309-19, March.
  18. 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.
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Cited by:
  1. Auriol, Emmanuelle & Picard, Pierre, 2011. "A Theory of BOT Concession Contracts," TSE Working Papers 11-228, Toulouse School of Economics (TSE).
  2. PICARD, Pierre & RUSLI, Ridwan D., 2012. "State owned firms: private debt, cost revelation and welfare," CORE Discussion Papers 2012047, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Jullien, Bruno & Pouyet, Jérôme & Sand-Zantman, Wilfried, 2009. "Contracting and Regulation under the Threat of Duplication," TSE Working Papers 09-071, Toulouse School of Economics (TSE).
  4. Qiu, Larry D. & Wang, Susheng, 2011. "BOT projects: Incentives and efficiency," Journal of Development Economics, Elsevier, vol. 94(1), pages 127-138, January.
  5. Heijdra, B.J. & Ligthart, J.E., 2006. "Fiscal Policy, Monopolistic Competition and Finite Lives," Open Access publications from Tilburg University urn:nbn:nl:ui:12-199395, Tilburg University.

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