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Does privatising public service provision reduce accountability?

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  • Matthew Ellman

Abstract

This paper studies how privatising service provision (shifting control rights and contractual obligations to providers) affects accountability. There are two main effects. (1) Privatisation demotivates governments from investigating and responding to public demands, since providers then hold up service adaptations. (2) Privatisation demotivates the public from mobilising to pressure for service adaptations, since providers then indirectly holdup the public by inflating the government’s cost of implementing these adaptations. So, when choosing governance mode, politicians may be biased towards privatising as a way to escape public attention; relatedly, privatising utilities may reduce public pressure and increase consumer prices.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 997.

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Date of creation: Oct 2006
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Handle: RePEc:upf:upfgen:997

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Web page: http://www.econ.upf.edu/

Related research

Keywords: Public Services; Privatisation; Voter Mobilisation; Accountability; Government Responsiveness; Contract Length; Incomplete Contracts; Holdup;

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References

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  1. Timothy Besley & Robin Burgess, 2000. "The Political Economy of Government Responsiveness: Theory and Evidence from India," STICERD - Development Economics Papers - From 2008 this series has been superseded by Economic Organisation and Public Policy Discussion Papers, Suntory and Toyota International Centres for Economics 28, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  2. Bennedsen, Morten, 2000. "Political ownership," Journal of Public Economics, Elsevier, Elsevier, vol. 76(3), pages 559-581, June.
  3. Klaus M. Schmidt, 1990. "The Costs and Benefits of Privatization," Discussion Paper Serie A, University of Bonn, Germany 287, University of Bonn, Germany.
  4. John E. Kwoka, Jr., 2002. "Governance Alternatives and Pricing in the U.S. Electric Power Industry," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 18(1), pages 278-294, April.
  5. Timothy Besley & Stephen Coate, 2003. "Elected Versus Appointed Regulators: Theory and Evidence," Journal of the European Economic Association, MIT Press, MIT Press, vol. 1(5), pages 1176-1206, 09.
  6. Eric Maskin & Jean Tirole, 2004. "The Politician and the Judge: Accountability in Government," Economics Working Papers, Institute for Advanced Study, School of Social Science 0020, Institute for Advanced Study, School of Social Science.
  7. John Kwoka, 2005. "The comparative advantage of public ownership: evidence from U.S. electric utilities," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 38(2), pages 622-640, May.
  8. 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.
  9. Jean-Jacques Laffont & Jean Tirole, 1991. "Privatization and Incentives," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 572, Massachusetts Institute of Technology (MIT), Department of Economics.
  10. Besley, Timothy & Burgess, Robin, 2001. "Political agency, government responsiveness and the role of the media," European Economic Review, Elsevier, Elsevier, vol. 45(4-6), pages 629-640, May.
  11. Anke S. Kessler & Christoph Lülfesmann, 2001. "Monitoring and Productive Efficiency in Public and Private Firms," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, Mohr Siebeck, Tübingen, vol. 58(2), pages 167-, February.
  12. Matthew Ellman, 2006. "The optimal length of contracts with application to outsourcing," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 965, Department of Economics and Business, Universitat Pompeu Fabra.
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Citations

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Cited by:
  1. Bennedsen, Morten & Schultz, Christian, 2011. "Arm's length delegation of public services," Journal of Public Economics, Elsevier, Elsevier, vol. 95(7), pages 543-552.
  2. Laure ATHIAS & Raphael SOUBEYRAN, 2012. "Less Risk, More Effort: Demand Risk Allocation in Incomplete Contracts," Working Papers, LAMETA, Universtiy of Montpellier 12-20, LAMETA, Universtiy of Montpellier, revised Jun 2012.
  3. Athias, Laure, 2007. "Political accountability, incentives, and Contractual design of public private partnerships," MPRA Paper 10538, University Library of Munich, Germany.
  4. Morten Bennedsen & Christian Schultz, 2007. "Arm’s Length Provision of Public Services," CESifo Working Paper Series 2161, CESifo Group Munich.

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