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Should Public Sectors Be Complements of Private Sectors?

  • Ikuo Ishibashi
  • Noriaki Matsushima

We discuss competition between high-quality private service providers that maximize their own profits and a low-quality public service provider that maximizes social surplus. Two heterogeneous consumer groups exist: those who demand only high-quality services and those who care little whether services are high- or low-quality. The setting reflects the fact that some consumers feel dissatisfaction with public service providers. We show that, under certain conditions, social welfare is smaller when there is a public service provider than when there is not. The result holds even though the efficiency of the public service is equal to that of the private services.

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Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

Volume (Year): 168 (2012)
Issue (Month): 4 (December)
Pages: 712-730

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Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201212)168:4_712:spsbco_2.0.tx_2-
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