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Application of Baumol's Cost Disease to Public Sector Services: Conceptual, theoretical and empirical falsities

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  • Stephen J. Bailey
  • Ari-Veikko Anttiroiko
  • Pekka Valkama

Abstract

This paper argues that justifying lack of productivity improvements in public services by referring to Baumol's Cost Disease (BCD) is conceptually confused, theoretically misspecified and empirically blind. BCD misconceptualizes public services as categorically distinct from manufactured goods and is based on a theory of productivity not directly applicable to many public services, therefore failing to recognize evidence of substantial scope for improving public services' productivity. Analysis of the structural and behavioural unbundling of value creation and decomposition of professional skills in service provision leads this paper to conclude that public services are not as technologically non-progressive as BCD asserts.

Suggested Citation

  • Stephen J. Bailey & Ari-Veikko Anttiroiko & Pekka Valkama, 2016. "Application of Baumol's Cost Disease to Public Sector Services: Conceptual, theoretical and empirical falsities," Public Management Review, Taylor & Francis Journals, vol. 18(1), pages 91-109, January.
    • Handle: RePEc:taf:pubmgr:v:18:y:2016:i:1:p:91-109
    DOI: 10.1080/14719037.2014.958092
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    1. Ard-Pieter de Man, 2004. "The Network Economy," Books, Edward Elgar Publishing, number 3189.
    2. Barry P. Bosworth & Jack E. Triplett, 2003. "Productivity measurement issues in services industries: \\"Baumol's disease\\" has been cured," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 23-33.
    3. Hammer, Michael & Champy, James, 1993. "Reengineering the corporation: A manifesto for business revolution," Business Horizons, Elsevier, vol. 36(5), pages 90-91.
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    Cited by:

    1. Corlet Walker, Christine & Druckman, Angela & Jackson, Tim, 2021. "Welfare systems without economic growth: A review of the challenges and next steps for the field," Ecological Economics, Elsevier, vol. 186(C).

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