Arm’s Length Provision of Public Services
AbstractWe 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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Bibliographic InfoPaper provided by University of Copenhagen. Department of Economics. Centre for Industrial Economics in its series CIE Discussion Papers with number 2007-12.
Length: 42 pages
Date of creation: Nov 2007
Date of revision:
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More information through EDIRC
outsourcing; strategic delegation; incentives; incomplete contracting; market power; representative democracy;
Other versions of this item:
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; 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)
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