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On Publicly Provided Services – Public or Private Production?

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  • Eero Lehto

Abstract

This study focuses on the production services which are purchased by the government. We consider whether the delivery of the service should be public or private. The social impact of the service is determined by the satisfaction of unforeseen individual needs. Assuming that the information about these needs is ex post observed only by the supplier of the service favours public production. Auctioning the right-toproduce contract, however, selects the most cost-e±cient private supplier. Whether private production is optimal resolves from the trade-o® between cost e±ciency and a failure in meeting individual needs. We also analyse investments in monitoring.

Suggested Citation

  • Eero Lehto, 2005. "On Publicly Provided Services – Public or Private Production?," Working Papers 211, Työn ja talouden tutkimus LABORE, The Labour Institute for Economic Research LABORE.
    • Handle: RePEc:pst:wpaper:211
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    References listed on IDEAS

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    Cited by:

    1. 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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    More about this item

    Keywords

    service production; public or private and auction;

    JEL classification:

    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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