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Outsourcing, Market Structure and Elections

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Author Info

  • Morten Bennedsen

    (Copenhagen Business School)

  • Christian Schultz

    (Institute of Economics, University of Copenhagen)

Abstract

We make a positive analysis of the impact of market structure and political preferences on a (local) government's decision to outsource public service using the framework of Hart, Shleifer and Vishny (1997). We argue that although outsourcing is more attractive when the privte market is competitive, the outsourcing decision will be the same in a competitive as in a monopolistic market. Second, we analyze how the price paid in a private monopoly market depends on how much the government cares about the benefits of the public service, and we provide conditions for when a "leftist, public service loving" politician outsources to a lower price. When this is the case and outsourcing is a salient issue in an election, the median voter prefers a more "leftist" government to be in charge of the outsourcing.

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Bibliographic Info

Paper provided by University of Copenhagen. Department of Economics. Centre for Industrial Economics in its series CIE Discussion Papers with number 2003-05.

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Length: 26 pages
Date of creation: Jun 2003
Date of revision:
Handle: RePEc:kud:kuieci:2003-05

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Keywords: privatization; outsourcing; incomplete contracts; market power; elections;

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References

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  1. Tim Besley & Stephen Coate, . "An Economic Model of Representative Democracy," Penn CARESS Working Papers ecf70d639d700dba5327ab0c8, Penn Economics Department.
  2. Suzuki, Kenji, 2001. "Marketization of Elderly Care in Sweden," EIJS Working Paper Series 137, The European Institute of Japanese Studies.
  3. Bennedsen, Morten, 1999. "Political Ownership," Working Papers 11-1999, Copenhagen Business School, Department of Economics.
  4. Shleifer, Andrei & Vishny, Robert W, 1994. "Politicians and Firms," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 995-1025, November.
  5. Lopez-de-Silanes, Florencio, 1997. "Determinants of Privatization Prices," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 965-1025, November.
  6. 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.
  7. Jean-Jacques Laffont & Jean Tirole, 1991. "Privatization and Incentives," Working papers 572, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. Small, K.A. & Gomez-Ibanez, J.A., 1996. "Urban Transportation," Papers 95-96-4, California Irvine - School of Social Sciences.
  9. Andrei Shleifer, 1998. "State Versus Private Ownership," NBER Working Papers 6665, National Bureau of Economic Research, Inc.
  10. Oliver Hart & Andrei Shleifer & Robert Vishny, 1996. "The Proper Scope of Government: Theory and an Application to Prisons," Harvard Institute of Economic Research Working Papers 1778, Harvard - Institute of Economic Research.
  11. Boycko, Maxim & Shleifer, Andrei & Vishny, Robert W, 1996. "A Theory of Privatisation," Economic Journal, Royal Economic Society, vol. 106(435), pages 309-19, March.
  12. Schmidt, Klaus M., 1996. "The costs and benefits of privatization: An incomplete contracts approach," Munich Reprints in Economics 19773, University of Munich, Department of Economics.
  13. John Vickers & George Yarrow, 1988. "Privatization: An Economic Analysis," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262720116, December.
  14. 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.
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Cited by:
  1. Bennedsen, Morten & Schultz, Christian, 2003. "Adaptive Contracting," Working Papers 08-2003, Copenhagen Business School, Department of Economics.
  2. Andreas Knabe & Peter Birch Sorensen, 2006. "Outsourcing of Public Sevice Provision: When is it more efficient?," Finnish Economic Papers, Finnish Economic Association, vol. 19(1), pages 3-15, Spring.

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