Contracting Out Public Service Provision to Not-for-Profit Firms

Bennett, John; Iossa, Elisabetta

doi:10.2139/ssrn.1018206

Contracting Out Public Service Provision to Not-for-Profit Firms

29 Pages Posted: 15 Oct 2007

John Bennett

Brunel University London - Economics and Finance; Institute for the Study of Labor (IZA); University of Wales, Swansea - School of Business and Economics; Centre for Economic Policy Research (CEPR)

Elisabetta Iossa

University of Rome Tor Vergata; IEFE Bocconi University; Centre for Economic Policy Research (CEPR)

Date Written: April 30, 2007

Abstract

In an incomplete contract setting, we analyze the contracting out of public service provision, comparing the performance of for-profit and not-for-profit firms (NPs). Two institutional arrangements are considered, with control rights lying either with the firm ("PPP") or the government ("traditional procurement"). The use of an NP with traditional procurement is found never to be the preferred option in terms of social welfare. But for a range of parameter values an NP in a PPP is the preferred option. The development of PPP provision has thus created opportunities for the advantageous use of NPs in public services.

Keywords: contracting out, not-for-profit firms, private finance initiative, public-private partnership, incomplete contracts, public service provision

JEL Classification: H41, L31, L33.

Suggested Citation: Suggested Citation

Bennett, John and Iossa, Elisabetta, Contracting Out Public Service Provision to Not-for-Profit Firms (April 30, 2007). Available at SSRN: https://ssrn.com/abstract=1018206 or http://dx.doi.org/10.2139/ssrn.1018206