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Contracting out public service provision to not-for-profit firms

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  • John Bennett
  • Elisabetta Iossa
Abstract
In an incomplete-contract setting, we analyse the contracting out of public service provision, comparing the performance of for-profit (FP) and not-for-profit (NP) firms. Two institutional arrangements are considered, control rights lying either with the firm (PPP) or the government (traditional procurement). We show that provision by an NP may be associated with overinvestment in quality improvement, but that under conditions that restrain this overinvestment, the NP may yield greater welfare than obtains with FP-provision. Although none of the four possible arrangements is preferable under all conditions, the introduction of PPP has enhanced the scope for advantageous provision by an NP. Copyright 2010 Oxford University Press 2009 All rights reserved, Oxford University Press.

Suggested Citation

  • 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.
    • Handle: RePEc:oup:oxecpp:v:62:y:2010:i:4:p:784-802
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    1. Glaeser, Edward L. & Shleifer, Andrei, 2001. "Not-for-profit entrepreneurs," Journal of Public Economics, Elsevier, vol. 81(1), pages 99-115, July.
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    3. David Martimort & Flavio Menezes & Myrna Wooders & ELISABETTA IOSSA & DAVID MARTIMORT, 2015. "The Simple Microeconomics of Public-Private Partnerships," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(1), pages 4-48, February.
    4. 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.
    5. 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.
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    9. Oliver Hart & Andrei Shleifer & Robert W. Vishny, 1997. "The Proper Scope of Government: Theory and an Application to Prisons," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(4), pages 1127-1161.
    10. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817.
    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 and Oxford Review of Economic Policy Limited, vol. 19(2), pages 335-347, Summer.
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    Cited by:

    1. 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.
    2. Makris, Miltiadis, 2009. "Incentives for motivated agents under an administrative constraint," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 428-440, August.
    3. Iliopoulos Constantine N. & Valentinov Vladislav & Kvartiuk Vasyl & Bartkowski Bartosz, 2013. "Government–Third Sector Relations in European Rural Development: A Critical Perspective," Nonprofit Policy Forum, De Gruyter, vol. 4(1), pages 65-80, May.
    4. 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.
    5. 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.
    6. 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.
    7. Capuno, Joseph J., 2014. "Public–Private Service Delivery Arrangements and Incentive Schemes in Developing Asia," ADB Economics Working Paper Series 387, Asian Development Bank.
    8. Dementiev, Andrei, 2018. "Contracting out public transport services to vertical partnerships," Research in Transportation Economics, Elsevier, vol. 69(C), pages 126-134.

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    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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