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Contracting Out Public Service Provision to Non-for-profit Firms

Author

Listed:
  • John Bennett

  • Elisabetta Iossa

Abstract

We analyze the contracting out of public service provision to private firms and compare the performance of for-profit and non-for-profit firms. We consider two alternative settings.In the first,the firm has control rights, as under the UK's Private Finance Initiative(PFI). In the second,the goverment retains control rights,as under traditional procurement. The main insights of the paper can be summarized as follows. First, even when an NP cares more than an Fp does about social benefits,it does not follows that provision by an NP yields the higher social benefits.This is because the non-distribution constraint in of an NP may work against its incentives to invest.Second, the new procurement strategy of PFI increases the desirability of NP provision,relative to traditional procurement.Third, a crucial role in determing the desirability of NP provision is played bu the correlation between the effect of investment onsocial benefit and profit and the nature od the firm's investment.

Suggested Citation

  • 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.
    • Handle: RePEc:bru:bruppp:04-12
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    File URL: http://www.brunel.ac.uk/329/efwps/04-12.pdf
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    1. is not listed on IDEAS
    2. Athias, Laure & Saussier, Stéphane, 2007. "Contractual flexibility or rigidity for public private partnerships? Theory and evidence from infrastructure concession contracts," MPRA Paper 10541, University Library of Munich, Germany.
    3. John Bennett & Elisabetta Iossa, 2010. "Contracting out public service provision to not-for-profit firms," Oxford Economic Papers, Oxford University Press, vol. 62(4), pages 784-802, October.
    4. Stephane Lavertu & Long Tran, 2025. "For‐profit milk in nonprofit cartons? The case of nonprofit charter schools subcontracting with for‐profit education management organizations," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 44(1), pages 236-265, January.
    5. Elisabetta Iossa & David Martimort, 2012. "Risk allocation and the costs and benefits of public--private partnerships," RAND Journal of Economics, RAND Corporation, vol. 43(3), pages 442-474, September.
    6. Joseph J. Capuno, 2014. "Public–Private Service Delivery Arrangements and Incentive Schemes in Developing Asia," ADB Economics Working Paper Series 387, Asian Development Bank.
    7. Makris, Miltiadis, 2009. "Incentives for motivated agents under an administrative constraint," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 428-440, August.
    8. Iliopoulos, Constantine & Valentinov, Vladislav & Kvartiuk, Vasyl & Bartkowski, Bartosz, 2013. "Government-third sector relations in European rural development: A critical perspective," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 4(1), pages 65-80.
    9. Dementiev, Andrei, 2018. "Contracting out public transport services to vertical partnerships," Research in Transportation Economics, Elsevier, vol. 69(C), pages 126-134.
    10. Nelarine Cornelius & Mathew Todres & Shaheena Janjuha-Jivraj & Adrian Woods & James Wallace, 2008. "Corporate Social Responsibility and the Social Enterprise," Journal of Business Ethics, Springer, vol. 81(2), pages 355-370, August.

    More about this item

    JEL classification:

    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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