The Proper Scope of Government: Theory and an Application to Prisons
AbstractWhen should a government provide a service inhouse and when should it contract out provision? We develop a model in which the provider can invest in improving the quality of service or reducing cost. If contracts are incomplete, the private provider has a stronger incentive to engage in both quality improvement and cost reduction than a government employee. However, the private contractor's incentive to engage in cost reduction is typically too strong because he ignores the adverse effect on non-contractible quality. The model is applied to understanding the costs and benefits of prison privatization.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5744.
Date of creation: Sep 1996
Date of revision:
Publication status: published as Quarterly Journal of Economics, Vol. 112, no. 4 (1997): 1126-1161.
Note: CF PE
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Other versions of this item:
- Hart, Oliver & Shleifer, Andrei & Vishny, Robert W, 1997. "The Proper Scope of Government: Theory and an Application to Prisons," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(4), pages 1127-61, November.
- 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, Harvard - Institute of Economic Research 1778, Harvard - Institute of Economic Research.
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
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