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Contracting Out Public Service Provision to Not-for-Profit Firms

  • John Bennett
  • Elisabetta Iossa

In an incomplete contract setting, we analyze the contracting out of public service provision, comparing the performance of for-profit and not-for-profit private firms. Two institutional arrangements are considered, control rights lying either with the firm as under the UK's Private Finance Initiative(PFI) or the government (as under traditional procurement). We derive the conditions under which provision by not-for-profit firms leads to greater investment and social benefit than provision by for profit firms. The role played by the non-distribution constraint in not-for profit firms and the nature of the investment are emphasized.

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Paper provided by Economics and Finance Section, School of Social Sciences, Brunel University in its series Economics and Finance Discussion Papers with number 05-14.

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Length: 29 pages
Date of creation: Jun 2005
Date of revision:
Handle: RePEc:bru:bruedp:05-14
Contact details of provider: Postal: Brunel University, Uxbridge, Middlesex UB8 3PH, UK

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  1. Tim Besley & Maitreesh Ghatak, 2005. "Competition and incentives with motivated agents," LSE Research Online Documents on Economics 928, London School of Economics and Political Science, LSE Library.
  2. Burton A. Weisbrod, 1997. "The future of the nonprofit sector: Its entwining with private enterprise and government," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 16(4), pages 541-555.
  3. Bos, Dieter & De Fraja, Gianni, 2002. "Quality and outside capacity in the provision of health services," Journal of Public Economics, Elsevier, vol. 84(2), pages 199-218, May.
  4. Schmitz, Patrick W., 2000. "Partial Privatization and Incomplete Contracts: The Proper Scope of Government Reconsidered," MPRA Paper 13447, University Library of Munich, Germany.
  5. John Bennett & Elisabetta Iossa, 2004. "Contracting Out Public Service Provision to Non-for-profit Firms," Public Policy Discussion Papers 04-12, Economics and Finance Section, School of Social Sciences, Brunel University.
  6. John Bennett & Elisabetta Iossa, 2002. "Building and Managing Facilities for Public Services," Economics and Finance Discussion Papers 02-08, Economics and Finance Section, School of Social Sciences, Brunel University.
  7. Oliver Hart & Andrei Shleifer & Robert Vishny, 1996. "The Proper Scope of Government: Theory and an Application to Prisons," Harvard Institute of Economic Research Working Papers 1778, Harvard - Institute of Economic Research.
  8. Susan Rose-Ackerman, 1996. "Altruism, Nonprofits, and Economic Theory," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 701-728, June.
  9. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817, March.
  10. Martimort, David & Pouyet, Jerome, 2008. "To build or not to build: Normative and positive theories of public-private partnerships," International Journal of Industrial Organization, Elsevier, vol. 26(2), pages 393-411, March.
  11. John Bennett & Elisabetta Iossa & Gabriella Legrenzi, 2003. "The Role of Commercial Non-profit Organizations in the Provision of Public Services," Oxford Review of Economic Policy, Oxford University Press, vol. 19(2), pages 335-347, Summer.
  12. Edward L. Glaeser & Andrei Shleifer, 1998. "Not-For-Profit Entrepreneurs," Harvard Institute of Economic Research Working Papers 1852, Harvard - Institute of Economic Research.
  13. Timothy Besley & Maitreesh Ghatak, 2001. "Government Versus Private Ownership Of Public Goods," The Quarterly Journal of Economics, MIT Press, vol. 116(4), pages 1343-1372, November.
  14. Bilodeau, Marc & Slivinski, Al, 1996. "Volunteering nonprofit entrepreneurial services," Journal of Economic Behavior & Organization, Elsevier, vol. 31(1), pages 117-127, October.
  15. Oliver Hart, 2002. "Incomplete Contracts and Public Ownership: Remarks, and an Application to Public-Private Partnerships," The Centre for Market and Public Organisation 02/061, Department of Economics, University of Bristol, UK.
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