Arm's length delegation of public services

Morten Bennedsen and Christian Schultz

Journal of Public Economics, 2011, vol. 95, issue 7, 543-552

Abstract: Delegation is a key feature of political decision making: Mayors or prime ministers delegate to subordinates, voters delegate to elected representatives. We analyze the effect of political delegation on public service provision and the choice between private or public providers when contracts are incomplete and incentives therefore distorted. We identify two important effects: The incentive effect increases the incentive part of service providers' remuneration and delegation may therefore be a substitute for an explicit complete incentive contract. The bargaining effect improves the bargaining position vis a vis a private firm with market power. In general, these effects imply that delegation improves public service provision.

Keywords: Outsourcing; Strategic delegation; Public service provision; Incentives; Incomplete contracting; Market power; Representative democracy (search for similar items in EconPapers)
JEL-codes: D72 L33 L97 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:95:y:2011:i:7:p:543-552

DOI: 10.1016/j.jpubeco.2011.02.002

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