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The determinants of the choice between public and private production of a publicly funded service

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  • Robert McGuire
  • Robert Ohsfeldt
  • T. Cott

Abstract

The public choice literature contains little formal analysis of the bureaucratic choice of production modes — public or private — of publicly funded services. An important question to be addressed is why some governmental bodies choose to provide a publicly funded service with publicly owned and operated production units whereas other governmental bodies contract with private firms to provide the same publicly funded service. This paper is the first formal attempt to remedy this gap in the literature. We develop a theoretical explanation of the government decision maker's choice between public and private production modes based on utility maximizing behavior. We then examine empirically this choice employing logit analysis. The empirical results, which include several tests for robustness, confirm our theoretical explanation. The results are significant and suggest that non-monetary constraints are an important factor affecting this choice of production modes and that monetary constraints are less influential. Copyright Martinus Nijhoff Publishers 1987

Suggested Citation

  • Robert McGuire & Robert Ohsfeldt & T. Cott, 1987. "The determinants of the choice between public and private production of a publicly funded service," Public Choice, Springer, vol. 54(3), pages 211-230, August.
    • Handle: RePEc:kap:pubcho:v:54:y:1987:i:3:p:211-230
    DOI: 10.1007/BF00125647
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    References listed on IDEAS

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    1. Borcherding, Thomas E & Deacon, Robert T, 1972. "The Demand for the Services of Non-Federal Governments," American Economic Review, American Economic Association, vol. 62(5), pages 891-901, December.
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    6. Gary S. Becker, 1983. "A Theory of Competition Among Pressure Groups for Political Influence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(3), pages 371-400.
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    Cited by:

    1. Niklas Potrafke, 2019. "Does Public Sector Outsourcing Decrease Public Employment? Empirical Evidence from OECD Countries," CESifo Economic Studies, CESifo Group, vol. 65(4), pages 464-484.
    2. Elinder, Mikael & Jordahl, Henrik, 2013. "Political preferences and public sector outsourcing," European Journal of Political Economy, Elsevier, vol. 30(C), pages 43-57.
    3. Geddes, R. Richard & Wagner, Benjamin L., 2013. "Why do U.S. states adopt public–private partnership enabling legislation?," Journal of Urban Economics, Elsevier, vol. 78(C), pages 30-41.
    4. Deller, Steven C. & Hinds, David G. & Hinman, Donald L., 2001. "Local Public Services In Wisconsin: Alternatives For Municipalities With A Focus On Privatization," Staff Papers 12658, University of Wisconsin-Madison, Department of Agricultural and Applied Economics.
    5. Germà Bel & Xavier Fageda & Melania Mur, 2010. "¿Por qué se privatizan servicios en los municipios (pequeños)? Evidencia empírica sobre residuos sólidos y agua," Hacienda Pública Española / Review of Public Economics, IEF, vol. 192(1), pages 33-58, March.
    6. Abdulai K Mohammed, 2010. "Purchaser – Provider Split: Does Theory Match Evidence in Tasmania?," Environment and Planning C, , vol. 28(6), pages 958-977, December.
    7. Mildred Warner & Amir Hefetz, 2003. "Rural—Urban Differences in Privatization: Limits to the Competitive State," Environment and Planning C, , vol. 21(5), pages 703-718, October.
    8. Marzano, Riccardo, 2015. "One more ride on the merry-go-round! Public ownership and delayed competition in local public services," Journal of Comparative Economics, Elsevier, vol. 43(4), pages 981-996.
    9. Xavier Fageda & Germa Bel, 2008. "Local privatization, intermunicipal cooperation,transaction costs and political interests: Evidence from Spain," IREA Working Papers 200804, University of Barcelona, Research Institute of Applied Economics, revised Apr 2008.
    10. Daniel Albalate & Germà Bel & R. Richard Geddes, 2012. "“The determinants of contractual choice for private involvement in infrastructure projects in the United States”," IREA Working Papers 201220, University of Barcelona, Research Institute of Applied Economics, revised Dec 2012.
    11. Germà Bel & Xavier Fageda, 2009. "Factors explaining local privatization: a meta-regression analysis," Public Choice, Springer, vol. 139(1), pages 105-119, April.
    12. Germa Bel & Xavier Fageda, 2008. "Reforming the local public sector: economics and politics in privatization of water and solid waste," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 11(1), pages 45-65.
    13. Anders Sundell & Victor Lapuente, 2012. "Adam Smith or Machiavelli? Political incentives for contracting out local public services," Public Choice, Springer, vol. 153(3), pages 469-485, December.
    14. Germà Bel & Xavier Fageda & Melania Mur, 2011. "Why do municipalities cooperate to provide local public services? An empirical analysis," IREA Working Papers 201118, University of Barcelona, Research Institute of Applied Economics, revised Oct 2011.
    15. Germa Bel & Anton Costas, 2004. "Do public sector reforms get rusty? An empirical analysis on privatization of solid waste collection," Public Economics 0409014, University Library of Munich, Germany.
    16. Mildred Warner & Robert Hebdon, 2001. "Local Government Restructuring: Privatization and Its Alternatives," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 20(2), pages 315-336.
    17. Strömbäck, Elon, 2015. "Policy by Public Procurement: Opportunities and Pitfalls," Umeå Economic Studies 915, Umeå University, Department of Economics.

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