TY - UNPB

T1 - Arm's Length Provision of Public Services

AU - Bennedsen, Morten

AU - Schultz, Christian

N1 - JEL Classification: D72, L33, L97

PY - 2007

Y1 - 2007

N2 - We analyze the economic consequences of strategic delegation of the right to decide between public or private provision of governmental service and/or the authority to negotiate and renegotiate with the chosen service provider. Our model encompass both bureaucratic delegation from a government to a privatization agency and electoral delegation from voters to a government. We identify two powerfull effects of delegation when contracts are incomplete: The incentive effect increases the incentive part of service providers' remuneration and we show that strategic delegation may substitute formal incentive contracts. The bargaining effect improves the bargaining position vis a vis a private firm with market power and leads to a lower price for the service

AB - We analyze the economic consequences of strategic delegation of the right to decide between public or private provision of governmental service and/or the authority to negotiate and renegotiate with the chosen service provider. Our model encompass both bureaucratic delegation from a government to a privatization agency and electoral delegation from voters to a government. We identify two powerfull effects of delegation when contracts are incomplete: The incentive effect increases the incentive part of service providers' remuneration and we show that strategic delegation may substitute formal incentive contracts. The bargaining effect improves the bargaining position vis a vis a private firm with market power and leads to a lower price for the service

KW - Faculty of Social Sciences

KW - outsourcing

KW - strategic delegation

KW - incentives

KW - incomplete contracting

KW - market power

M3 - Working paper

BT - Arm's Length Provision of Public Services

PB - Centre for Industrial Economics, Department of Economics, University of Copenhagen

ER -