Arm’s Length Provision of Public Services

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Arm’s Length Provision of Public Services

Author Info

Morten Bennedsen (Copenhagen Business School)
Christian Schultz (Department of Economics, University of Copenhagen)

Additional information is available for the following registered author(s):

Christian Schultz

Abstract

We analyze the economic consequences of strategic delegation of the right to decide between public or private provision of governmental service and/or the authority to negotiate and renegotiate with the chosen service provider. Our model encompass both bureaucratic delegation from a government to a privatization agency and electoral delegation from voters to a government. We identify two powerfull effects of delegation when contracts are incomplete: The incentive effect increases the incentive part of service providers’ remuneration and we show that strategic delegation may substitute formal incentive contracts. The bargaining effect improves the bargaining position vis a vis a private firm with market power and leads to a lower price for the service.

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Publisher Info
Paper provided by University of Copenhagen. Department of Economics. Centre for Industrial Economics in its series CIE Discussion Papers with number 2007-12.

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Length: 42 pages
Date of creation: Nov 2007
Date of revision:
Handle: RePEc:kud:kuieci:2007-12

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Paper
- Bennedsen, Morten / Schultz, Christian, 2007. "Arm’s Length Provision of Public Services," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]

Find related papers by JEL classification:
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior
L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Boundaries of Public and Private Enterprise; Privatization; Contracting Out
L97 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Utilities: General

This paper has been announced in the following NEP Reports:

NEP-ALL-2007-12-15 (All new papers)
NEP-CDM-2007-12-15 (Collective Decision-Making)
NEP-PBE-2007-12-15 (Public Economics)

References listed on IDEAS
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