Competition in Public Service Provision: The Role of Not-for-Profit Providers

42 Pages Posted: 24 Jan 2018

See all articles by Timothy J. Besley

Timothy J. Besley

London School of Economics & Political Science (LSE) - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

James M. Malcomson

University of Oxford - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Date Written: December 05, 2017

Abstract

With public services such as health and education, it is not straightforward for consumers to assess the quality of provision. Many such services are provided by monopoly not-for-profit providers and there is concern that for-profit providers may increase profit at the expense of quality. This paper explores whether entry by for-profit providers is good for consumers despite the problem of unobserved quality. The model generates three key policy-relevant insights. First, by developing a novel approach to competition between different organizational forms, it frames the relevant trade-offs precisely. Second, it shows the value of keeping an incumbent not-for-profit as an active provider. Third, it characterizes the optimal payment (or voucher value) to an entrant for each consumer who switches in a way that can be applied empirically.

Keywords: public services, competition, not-for-profit providers

JEL Classification: H110, H440, L210, L310

Suggested Citation

Besley, Timothy J. and Malcomson, James M., Competition in Public Service Provision: The Role of Not-for-Profit Providers (December 05, 2017). CESifo Working Paper Series No. 6759. Available at SSRN: https://ssrn.com/abstract=3107485

Timothy J. Besley

London School of Economics & Political Science (LSE) - Department of Economics ( email )

Houghton Street
London WC2A 2AE
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+44 20 7955 6702 (Phone)
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National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

London
United Kingdom

James M. Malcomson (Contact Author)

University of Oxford - Department of Economics ( email )

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Manor Road
Oxford, OX1 3BJ
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

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Munich, DE-81679
Germany

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