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Delegation of Contracting in the Private Provision of Public Services

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  • John Bennett
  • Elisabetta Iossa

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Abstract

We use an incomplete-contract approach to compare contracting out by a public sector agency with the delegation of contracting out to a public-private partnership (PPP) that is a joint venture between private and public sector agents. The PPP maximizes a linear combination of profit and social benefit. Such delegation may be desirable to curb innovations that reduce the cost of provision but also reduce social benefit. Delegation may be undesirable for innovations that increase social benefit but also raise costs. Our results are explained in terms of the shadow cost of public funds and the negotiating stance of the PPP. Copyright Springer 2006

Suggested Citation

  • John Bennett & Elisabetta Iossa, 2006. "Delegation of Contracting in the Private Provision of Public Services," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 29(1), pages 75-92, September.
  • Handle: RePEc:kap:revind:v:29:y:2006:i:1:p:75-92
    DOI: 10.1007/s11151-006-9110-z
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    References listed on IDEAS

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    1. Fershtman, Chaim & Judd, Kenneth L & Kalai, Ehud, 1991. "Observable Contracts: Strategic Delegation and Cooperation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(3), pages 551-559, August.
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    Cited by:

    1. David Martimort & Flavio Menezes & Myrna Wooders & ELISABETTA IOSSA & DAVID MARTIMORT, 2015. "The Simple Microeconomics of Public-Private Partnerships," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(1), pages 4-48, February.
    2. Rabah Arezki & Patrick Bolton & Sanjay Peters & Frederic Samama & Joseph Stiglitz, 2016. "From Global Savings Glut to Financing Infrastructure; The Advent of Investment Platforms," IMF Working Papers 16/18, International Monetary Fund.
    3. Roehrich, Jens K. & Lewis, Michael A. & George, Gerard, 2014. "Are public–private partnerships a healthy option? A systematic literature review," Social Science & Medicine, Elsevier, vol. 113(C), pages 110-119.
    4. Hoppe, Eva I. & Kusterer, David J. & Schmitz, Patrick W., 2013. "Public–private partnerships versus traditional procurement: An experimental investigation," Journal of Economic Behavior & Organization, Elsevier, vol. 89(C), pages 145-166.
    5. Polzin, Friedemann & von Flotow, Paschen & Nolden, Colin, 2016. "What encourages local authorities to engage with energy performance contracting for retrofitting? Evidence from German municipalities," Energy Policy, Elsevier, vol. 94(C), pages 317-330.
    6. Dementiev, Andrei & Loboyko, Anfisa, 2014. "Trusting partnerships in a regulatory game: The case of suburban railway transport in Russia," Research in Transportation Economics, Elsevier, vol. 48(C), pages 209-220.
    7. Eva I. Hoppe & Patrick W. Schmitz, 2013. "Public-private partnerships versus traditional procurement: Innovation incentives and information gathering," RAND Journal of Economics, RAND Corporation, vol. 44(1), pages 56-74, March.
    8. Hoppe, Eva I. & Schmitz, Patrick W., 2010. "Public versus private ownership: Quantity contracts and the allocation of investment tasks," Journal of Public Economics, Elsevier, vol. 94(3-4), pages 258-268, April.
    9. Dementiev, Andrei, 2016. "Strategic partnerships in local public transport," Research in Transportation Economics, Elsevier, vol. 59(C), pages 65-74.
    10. Stefan Lutz & Mario Pezzino, 2014. "Vertically Differentiated Mixed Oligopoly with Quality-dependent Fixed Costs," Manchester School, University of Manchester, vol. 82(5), pages 596-619, September.
    11. Nucciarelli, Alberto & Sadowski, Bert M. & Achard, Paola O., 2010. "Emerging models of public-private interplay for European broadband access: Evidence from the Netherlands and Italy," Telecommunications Policy, Elsevier, vol. 34(9), pages 513-527, October.
    12. Arshad Ali Javed & Patrick T.I. Lam & Albert P.C. Chan, 2014. "Change negotiation in public-private partnership projects through output specifications: an experimental approach based on game theory," Construction Management and Economics, Taylor & Francis Journals, vol. 32(4), pages 323-348, April.
    13. Athena Roumboutsos & Stéphane Saussier, 2014. "Public-private partnerships and investments in innovation: the influence of the contractual arrangement," Construction Management and Economics, Taylor & Francis Journals, vol. 32(4), pages 349-361, April.
    14. Carpintero, Samuel & Siemiatycki, Matti, 2016. "The politics of delivering light rail transit projects through public-private partnerships in Spain: A case study approach," Transport Policy, Elsevier, vol. 49(C), pages 159-167.
    15. Irina Glazyrina & Sergey Lavlinskii, 2017. "Transaction Costs and Prospects for Public-private Partnership in the Russian Mineral Resourse Sector," International Journal of Economics and Financial Issues, Econjournals, vol. 7(1), pages 403-413.

    More about this item

    Keywords

    delegation; Private Finance Initiative; public private partnership; public service provision; H11; L33;

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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