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

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  • John Bennett
  • Elisabetta Iossa

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 private firms. Two institutional arrangements are considered, control rights lying either with the firm as under the UK’s Private Finance Initiative (PFI) or the government (as under traditional procurement). We derive the conditions under which provision by not-for-profit firms leads to greater investment and social benefit than provision by for profit firms. The role played by the non-distribution constraint in not-for profit firms and the nature of the investment are emphasized.

Suggested Citation

  • John Bennett & Elisabetta Iossa, 2005. "Contracting Out Public Service Provision to Not-For-Profit Firms," The Centre for Market and Public Organisation 05/124, The Centre for Market and Public Organisation, University of Bristol, UK.
    • Handle: RePEc:bri:cmpowp:05/124
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    References listed on IDEAS

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    3. David Martimort & Flavio Menezes & Myrna Wooders & ELISABETTA IOSSA & DAVID MARTIMORT, 2015. "The Simple Microeconomics of Public-Private Partnerships," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(1), pages 4-48, February.
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    10. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817.
    11. John Bennett & Elisabetta Iossa & Gabriella Legrenzi, 2003. "The Role of Commercial Non-profit Organizations in the Provision of Public Services," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 19(2), pages 335-347, Summer.
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    Cited by:

    1. Athias, Laure & Saussier, Stéphane, 2007. "Contractual flexibility or rigidity for public private partnerships? Theory and evidence from infrastructure concession contracts," MPRA Paper 10541, University Library of Munich, Germany.
    2. John Bennett & Elisabetta Iossa, 2010. "Contracting out public service provision to not-for-profit firms," Oxford Economic Papers, Oxford University Press, vol. 62(4), pages 784-802, October.
    3. Elisabetta Iossa & David Martimort, 2012. "Risk allocation and the costs and benefits of public--private partnerships," RAND Journal of Economics, RAND Corporation, vol. 43(3), pages 442-474, September.
    4. Capuno, Joseph J., 2014. "Public–Private Service Delivery Arrangements and Incentive Schemes in Developing Asia," ADB Economics Working Paper Series 387, Asian Development Bank.
    5. Makris, Miltiadis, 2009. "Incentives for motivated agents under an administrative constraint," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 428-440, August.
    6. Iliopoulos, Constantine & Valentinov, Vladislav & Kvartiuk, Vasyl & Bartkowski, Bartosz, 2013. "Government-third sector relations in European rural development: A critical perspective," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 4(1), pages 65-80.
    7. Dementiev, Andrei, 2018. "Contracting out public transport services to vertical partnerships," Research in Transportation Economics, Elsevier, vol. 69(C), pages 126-134.
    8. Nelarine Cornelius & Mathew Todres & Shaheena Janjuha-Jivraj & Adrian Woods & James Wallace, 2008. "Corporate Social Responsibility and the Social Enterprise," Journal of Business Ethics, Springer, vol. 81(2), pages 355-370, August.

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    More about this item

    Keywords

    contracting out; not-for-profit firms; private finance initiative; public-private partnership; incomplete contracts; public service provision;
    All these keywords.

    JEL classification:

    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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