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Title:Arm's length provision of public services PDF Logo
Authors:Bennedsen, Morten
Schultz, Christian
Issue Date:2007
Series/Report no.:CESifo working paper 2161
Abstract: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.
Subjects:outsourcing
strategic delegation
incentives
incomplete contracting
market power
representative democracy
JEL:D72
L33
L97
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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