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Does privatising public service provision reduce accountability?

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  • Matthew Ellman

Abstract

This paper studies how privatising service provision (shifting control rights and contractual obligations to providers) affects accountability. There are two main effects. (1) Privatisation demotivates governments from investigating and responding to public demands, since providers then hold up service adaptations. (2) Privatisation demotivates the public from mobilising to pressure for service adaptations, since providers then indirectly holdup the public by inflating the government’s cost of implementing these adaptations. So, when choosing governance mode, politicians may be biased towards privatising as a way to escape public attention; relatedly, privatising utilities may reduce public pressure and increase consumer prices.

Suggested Citation

  • Matthew Ellman, 2006. "Does privatising public service provision reduce accountability?," Economics Working Papers 997, Department of Economics and Business, Universitat Pompeu Fabra.
  • Handle: RePEc:upf:upfgen:997
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    File URL: https://econ-papers.upf.edu/papers/997.pdf
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    References listed on IDEAS

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    1. Timothy Besley & Robin Burgess, 2002. "The Political Economy of Government Responsiveness: Theory and Evidence from India," The Quarterly Journal of Economics, Oxford University Press, vol. 117(4), pages 1415-1451.
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    3. Anke S. Kessler & Christoph Lülfesmann, 2001. "Monitoring and Productive Efficiency in Public and Private Firms," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 58(2), pages 167-167, February.
    4. Laffont, Jean-Jacques & Tirole, Jean, 1991. "Privatization and Incentives," Journal of Law, Economics, and Organization, Oxford University Press, vol. 7(0), pages 84-105, Special I.
    5. Oliver Hart & Andrei Shleifer & Robert W. Vishny, 1997. "The Proper Scope of Government: Theory and an Application to Prisons," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1127-1161.
    6. Eric Maskin & Jean Tirole, 2004. "The Politician and the Judge: Accountability in Government," American Economic Review, American Economic Association, vol. 94(4), pages 1034-1054, September.
    7. Bennedsen, Morten, 2000. "Political ownership," Journal of Public Economics, Elsevier, vol. 76(3), pages 559-581, June.
    8. John Kwoka, 2005. "The comparative advantage of public ownership: evidence from U.S. electric utilities," Canadian Journal of Economics, Canadian Economics Association, vol. 38(2), pages 622-640, May.
    9. Klaus M. Schmidt, 1990. "The Costs and Benefits of Privatization," Discussion Paper Serie A 287, University of Bonn, Germany.
    10. John E. Kwoka, Jr., 2002. "Governance Alternatives and Pricing in the U.S. Electric Power Industry," Journal of Law, Economics, and Organization, Oxford University Press, vol. 18(1), pages 278-294, April.
    11. repec:hrv:faseco:30727607 is not listed on IDEAS
    12. Matthew Ellman, 2006. "The optimal length of contracts with application to outsourcing," Economics Working Papers 965, Department of Economics and Business, Universitat Pompeu Fabra.
    13. Besley, Timothy & Burgess, Robin, 2001. "Political agency, government responsiveness and the role of the media," European Economic Review, Elsevier, vol. 45(4-6), pages 629-640, May.
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    Cited by:

    1. Bennedsen, Morten & Schultz, Christian, 2011. "Arm's length delegation of public services," Journal of Public Economics, Elsevier, vol. 95(7), pages 543-552.
    2. Morten Bennedsen & Christian Schultz, 2007. "Arm’s Length Provision of Public Services," CESifo Working Paper Series 2161, CESifo Group Munich.
    3. Laure ATHIAS & Raphael SOUBEYRAN, 2012. "Less Risk, More Effort: Demand Risk Allocation in Incomplete Contracts," Working Papers 12-20, LAMETA, Universtiy of Montpellier, revised Jun 2012.
    4. Athias, Laure, 2007. "Political accountability, incentives, and Contractual design of public private partnerships," MPRA Paper 10538, University Library of Munich, Germany.
    5. Athias, Laure & Wicht, Pascal, 2014. "Cultural Biases in Public Service Delivery: Evidence from a Regression Discontinuity Approach," MPRA Paper 60639, University Library of Munich, Germany.

    More about this item

    Keywords

    Public Services; Privatisation; Voter Mobilisation; Accountability; Government Responsiveness; Contract Length; Incomplete Contracts; Holdup;

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

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