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Arm's length delegation of public services

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  • Bennedsen, Morten
  • Schultz, Christian

Abstract

Delegation is a key feature of political decision making: Mayors or prime ministers delegate to subordinates, voters delegate to elected representatives. We analyze the effect of political delegation on public service provision and the choice between private or public providers when contracts are incomplete and incentives therefore distorted. We identify two important effects: The incentive effect increases the incentive part of service providers' remuneration and delegation may therefore be a substitute for an explicit complete incentive contract. The bargaining effect improves the bargaining position vis a vis a private firm with market power. In general, these effects imply that delegation improves public service provision.

Suggested Citation

  • Bennedsen, Morten & Schultz, Christian, 2011. "Arm's length delegation of public services," Journal of Public Economics, Elsevier, vol. 95(7), pages 543-552.
    • Handle: RePEc:eee:pubeco:v:95:y:2011:i:7:p:543-552
    DOI: 10.1016/j.jpubeco.2011.02.002
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    1. Sarel, Roee & Demirtas, Melanie, 2021. "Delegation in a multi-tier court system: Are remands in the U.S. federal courts driven by moral hazard?," European Journal of Political Economy, Elsevier, vol. 68(C).

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    More about this item

    Keywords

    Outsourcing; Strategic delegation; Public service provision; Incentives; Incomplete contracting; Market power; Representative democracy;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • L97 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Utilities: General

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