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Competitive Neutrality and the Cost and Quality of Welfare Services


  • Stennek, Johan

    (Department of Economics, School of Business, Economics and Law, Göteborg University)


Competition between private and public firms can increase service quality and reduce public costs in markets for tax-financed welfare services with non-contractible quality. Synergies arise from combining high-powered incentives for quality provision (emanating from private firms) with low rents (public firms). However, sometimes, the optimal regulation requires the government to provide public firms with better funding than private competitors, e.g. by paying them higher prices or covering their deficits. This additional compensation is not tied to any additional verifiable quality obligations and may therefore violate competitive neutrality rules incorporated to various areas of legislation.

Suggested Citation

  • Stennek, Johan, 2017. "Competitive Neutrality and the Cost and Quality of Welfare Services," Working Papers in Economics 704, University of Gothenburg, Department of Economics, revised Sep 2017.
  • Handle: RePEc:hhs:gunwpe:0704

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    public-private competition; competitive neutrality; mixed markets; public option; ownership; competition; incomplete contracts; strategic ambiguity; merit goods; SGEI;
    All these keywords.

    JEL classification:

    • H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • L44 - Industrial Organization - - Antitrust Issues and Policies - - - Antitrust Policy and Public Enterprise, Nonprofit Institutions, and Professional Organizations

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