Contracting Out Public Service Provision to Not-for-Profit Firms
29 Pages Posted: 15 Oct 2007
Date Written: April 30, 2007
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