Regulation Strategies for Public Service Provision

Public service provision has undergone a significant process of reform through the reduction of vertical integration in its supply and the introduction of competition. The aim of these reforms is to increase efficiency and ultimately to improve welfare, but these goals can be reached only if the appropriate regulation tool is chosen. In this paper we compare different ways of regulating the market in order to extract the information rent from the provider, in an environment where the regulator cannot observe quality and production costs and the workforce is represented by devoted workers. In particular, we will compare forms of competition in the market, such as spatial competition, with several forms of Dutch first price auctions for the market.