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Public versus private production and economies of scale

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  • Henrik Christoffersen

    ()

  • Martin Paldam

    ()

  • Allan Würtz

    ()

Abstract

The cost of producing the same good often differs substantially for public and private producers. We investigate the effect of organization in a case where the production technology is simple: The cleaning of Danish schools. Three forms of organization are used: Decentral municipal, central municipal or private. For small schools the organizational form has little impact on cost. For larger schools decentral municipal production is the most expensive. On average centralization reduces costs by 5%, while privatization reduces costs by 30%. Similar cost differences are reported in the literature for other cases, but it is a new result that the cost differences are due to economies of scale. Public choice theories predict that cost differences are due to ownership or competition. We find evidence that both theories help explain the cost differences. Copyright Springer Science+Business Media, Inc. 2007

Suggested Citation

  • Henrik Christoffersen & Martin Paldam & Allan Würtz, 2007. "Public versus private production and economies of scale," Public Choice, Springer, vol. 130(3), pages 311-328, March.
  • Handle: RePEc:kap:pubcho:v:130:y:2007:i:3:p:311-328
    DOI: 10.1007/s11127-006-9086-0
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    Citations

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    Cited by:

    1. Henrik Christoffersen & Martin Paldam, 2004. "Privatization in Denmark, 1980-2002," CESifo Working Paper Series 1127, CESifo Group Munich.
    2. Andersson, Fredrik & Jordahl, Henrik, 2011. "Outsourcing Public Services: Ownership, Competition, Quality and Contracting," Working Paper Series 874, Research Institute of Industrial Economics.
    3. Strömbäck, Elon, 2015. "Policy by Public Procurement: Opportunities and Pitfalls," Umeå Economic Studies 915, Umeå University, Department of Economics.

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