Should Public Sectors Be Complements of Private Sectors?

Ikuo Ishibashi and Noriaki Matsushima

Journal of Institutional and Theoretical Economics (JITE), 2012, vol. 168, issue 4, 712-730

Abstract: We discuss competition between high-quality private service providers that maximize their own profits and a low-quality public service provider that maximizes social surplus. Two heterogeneous consumer groups exist: those who demand only high-quality services and those who care little whether services are high- or low-quality. The setting reflects the fact that some consumers feel dissatisfaction with public service providers. We show that, under certain conditions, social welfare is smaller when there is a public service provider than when there is not. The result holds even though the efficiency of the public service is equal to that of the private services.

JEL-codes: H42 I12 L13 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (3)

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Working Paper: Should public sectors be complements of private sectors? (2008)
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