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From Public Monopsony to Competitive Market: More Efficiency but Higher Prices

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  • Josse Delfgaauw
  • Robert Dur

Abstract

This paper examines the consequences of creating a fully competitive market in a sector previously dominated by a cost-minimising public firm. Workers in the economy are heterogeneous in their motivation to work in the sector. In line with empirical findings, our model implies that firms in the competitive market provide stronger monetary incentives to workers, reach higher productivity, and employ less workers than the public firm. Allocative efficiency therefore increases. Nevertheless, prices of the sector’s output rise as competition between private firms for the best motivated workers leads to higher wage cost than under the public monopsony. Political support for liberalisation may therefore be limited.

Suggested Citation

  • Josse Delfgaauw & Robert Dur, 2003. "From Public Monopsony to Competitive Market: More Efficiency but Higher Prices," CESifo Working Paper Series 1095, CESifo.
    • Handle: RePEc:ces:ceswps:_1095
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    Cited by:

    1. Lamantia, Fabio & Pezzino, Mario, 2016. "Evolutionary efficacy of a Pay for Performance scheme with motivated agents," Journal of Economic Behavior & Organization, Elsevier, vol. 125(C), pages 107-119.
    2. Josse Delfgaauw & Robert Dur, 2008. "Incentives and Workers' Motivation in the Public Sector," Economic Journal, Royal Economic Society, vol. 118(525), pages 171-191, January.
    3. Robert Dur & Amihai Glazer, 2004. "Optimal Incentive Contracts For a Worker Who Envies His Boss," CESifo Working Paper Series 1282, CESifo.
    4. repec:dau:papers:123456789/5991 is not listed on IDEAS
    5. Delfgaauw, Josse & Dur, Robert, 2007. "Signaling and screening of workers' motivation," Journal of Economic Behavior & Organization, Elsevier, vol. 62(4), pages 605-624, April.
    6. Margaretha Buurman & Robert Dur, 2012. "Incentives and the Sorting of Altruistic Agents into Street-Level Bureaucracies," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(4), pages 1318-1345, December.
    7. Albiol, Judit & Díaz Serrano, Lluís & Teruel, Mercedes, 2014. "Is Self-employment a Way to Escape from Skill Mismatches?," Working Papers 2072/247652, Universitat Rovira i Virgili, Department of Economics.
    8. Barigozzi, Francesca & Burani, Nadia, 2013. "Intrinsic Motivation in the Labor Market: Not Too Much, Thank You," AICCON Working Papers 124-2013, Associazione Italiana per la Cultura della Cooperazione e del Non Profit.
    9. Josse Delfgaauw, 2007. "Dedicated Doctors: Public and Private Provision of Health Care with Altruistic Physicians," Tinbergen Institute Discussion Papers 07-010/1, Tinbergen Institute, revised 17 Sep 2007.
    10. José Millán & Jolanda Hessels & Roy Thurik & Rafael Aguado, 2013. "Determinants of job satisfaction: a European comparison of self-employed and paid employees," Small Business Economics, Springer, vol. 40(3), pages 651-670, April.
    11. Judit Albiol-Sánchez & Luis Diaz-Serrano & Mercedes Teruel, 2021. "The Transition to Self-Employment and Perceived Skill-Mismatches: Panel Data Evidence from Eleven EU Countries," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 153(3), pages 957-977, February.
    12. F. Barigozzi & N. Burani, 2013. "Bidimensional screening with intrinsically motivated workers," Working Papers wp866, Dipartimento Scienze Economiche, Universita' di Bologna.
    13. Bassi, Matteo & Pagnozzi, Marco & Piccolo, Salvatore, 2014. "Optimal contracting with altruism and reciprocity," Research in Economics, Elsevier, vol. 68(1), pages 27-38.

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    More about this item

    Keywords

    liberalisation; monopsony power; incentive wages; intrinsic motivation;
    All these keywords.

    JEL classification:

    • H40 - Public Economics - - Publicly Provided Goods - - - General
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J40 - Labor and Demographic Economics - - Particular Labor Markets - - - General
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • L30 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - General
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

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