Competitive Neutrality and the Cost and Quality of Welfare Services

Johan Stennek (johan.stennek@economics.gu.se)
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Johan Stennek: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: P.O. Box 640, SE 40530 GÖTEBORG, Sweden, http://www.economics.gu.se

No 704, Working Papers in Economics from University of Gothenburg, Department of Economics

Abstract: Competition between private and public firms can increase service quality and reduce public costs in markets for tax-financed welfare services with non-contractible quality. Synergies arise from combining high-powered incentives for quality provision (emanating from private firms) with low rents (public firms). However, sometimes, the optimal regulation requires the government to provide public firms with better funding than private competitors, e.g. by paying them higher prices or covering their deficits. This additional compensation is not tied to any additional verifiable quality obligations and may therefore violate competitive neutrality rules incorporated to various areas of legislation.

Keywords: public-private competition; competitive neutrality; mixed markets; public option; ownership; competition; incomplete contracts; strategic ambiguity; merit goods; SGEI (search for similar items in EconPapers)
JEL-codes: H44 L33 L44 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2017-08, Revised 2017-09
New Economics Papers: this item is included in nep-ind and nep-reg
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