Outsourcing, Market Structure and Elections

Morten Bennedsen and Christian Schultz ()
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Morten Bennedsen: Copenhagen Business School

No 2003-05, CIE Discussion Papers from University of Copenhagen. Department of Economics. Centre for Industrial Economics

Abstract: We make a positive analysis of the impact of market structure and political preferences on a (local) government's decision to outsource public service using the framework of Hart, Shleifer and Vishny (1997). We argue that although outsourcing is more attractive when the privte market is competitive, the outsourcing decision will be the same in a competitive as in a monopolistic market. Second, we analyze how the price paid in a private monopoly market depends on how much the government cares about the benefits of the public service, and we provide conditions for when a "leftist, public service loving" politician outsources to a lower price. When this is the case and outsourcing is a salient issue in an election, the median voter prefers a more "leftist" government to be in charge of the outsourcing.

Keywords: privatization; outsourcing; incomplete contracts; market power; elections (search for similar items in EconPapers)
JEL-codes: D72 L33 L97 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2003-06
New Economics Papers: this item is included in nep-mic and nep-pol
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Citations: View citations in EconPapers (2)

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