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The Choice Between the In-house Provision and the Competitive Out-house Provision of Public Services

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  • Eero Lehto

Abstract

This study focuses on the production welfare 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 producer of the service favours public production. Auctioning the right-to-produce contract, however, selects the most cost-effient private supplier. Whether private production is optimal resolves from the trade-off between cost effiency and a failure in meeting individual needs. We also analyse investments in monitoring.

Suggested Citation

  • Eero Lehto, 2006. "The Choice Between the In-house Provision and the Competitive Out-house Provision of Public Services," Working Papers 216, Työn ja talouden tutkimus LABORE, The Labour Institute for Economic Research LABORE.
    • Handle: RePEc:pst:wpaper:216
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    More about this item

    JEL classification:

    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • L80 - Industrial Organization - - Industry Studies: Services - - - General

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