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Delegation of Contracting in the Private Provision of Public Services

JOHN BENNETT and ELISABETTA IOSSA
Review of Industrial Organization
Vol. 29, No. 1/2 (September 2006), pp. 75-92
Published by: Springer
Stable URL: http://www.jstor.org/stable/41799302
Page Count: 18
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Delegation of Contracting in the Private Provision of Public Services
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Abstract

We use an incomplete-contract approach to compare contracting out by a public sector agency with the delegation of contracting out to a public-private partnership (PPP) that is a joint venture between private and public sector agents. The PPP maximizes a linear combination of profit and social benefit. Such delegation may be desirable to curb innovations that reduce the cost of provision but also reduce social benefit. Delegation may be undesirable for innovations that increase social benefit but also raise costs. Our results are explained in terms of the shadow cost of public funds and the negotiating stance of the PPP.

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