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Competition in Public Service Provision: The Role of Not-for-profit Providers

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  • Timothy Besley
  • James Malcomson

Abstract

With public services such as health and education, it is not straightforward for consumers to assess the quality of provision. Many such services are provided by monopoly not-for-profit providers and there is concern that for-profit providers may increase profit at the expense of quality. This paper explores whether entry by for-profit providers is good for consumers despite the problem of unobserved quality. The model generates three key policy-relevant insights. First, by developing a novel approach to competition between different organizational forms, it frames the relevant trade-offs precisely. Second, it shows the value of keeping an incumbent not-for-profit as an active provider. Third, it characterizes the optimal payment (or voucher value) to an entrant for each consumer who switches in a way that can be applied empirically.

Suggested Citation

  • Timothy Besley & James Malcomson, 2017. "Competition in Public Service Provision: The Role of Not-for-profit Providers," CESifo Working Paper Series 6759, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_6759
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    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp6759.pdf
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    References listed on IDEAS

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    Cited by:

    1. Surana, Mitul & Dongre, Ambrish, 2018. "Too much care? Private health care sector and surgical interventions during childbirth in India," IIMA Working Papers WP 2018-11-01, Indian Institute of Management Ahmedabad, Research and Publication Department.

    More about this item

    Keywords

    public services; competition; not-for-profit providers;

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship

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