The Proper Scope of Government: Theory and an Application to Prisons

Oliver D. Hart, Andrei Shleifer and R. W. Vishny

Scholarly Articles from Harvard University Department of Economics

Abstract: When should a government provide a service inhouse and when should it contract out provision? We develop a model in which the provider can invest in improving the quality of service or reducing cost, If contracts are incomplete, the private provider has a stronger incentive to engage in both quality improvement and cost reduction than a government employee. However, the private contractor’s incentive to engage in cost reduction is typically too strong because he ignores the adverse effect on non-contractible quality. The model is applied to understanding the costs and benefits of prison privatization.

Date: 1997
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Published in The Quarterly Journal of Economics

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Related works:
Journal Article: The Proper Scope of Government: Theory and an Application to Prisons (1997)
Working Paper: The Proper Scope of Government: Theory and an Application to Prisons (1996)
Working Paper: The Proper Scope of Government: Theory and an Application to Prisons (1996)
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Persistent link: https://EconPapers.repec.org/RePEc:hrv:faseco:30727607

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