Public vs private production efficiency: A theoretical and empirical comparison

Werner W. Pommerehne and Bruno Frey

No 73, Discussion Papers, Series I from University of Konstanz, Department of Economics

Abstract: The relative efficiency of private and public production of a public service (in particular households' refuse collection) is studied using the theory of property rights and the economic theory of bureaucracy. Both kinds of institutional organization of production result in inefficiencies if realistic conditions are considered. The empirical analysis of refuse collection of 103 Swiss cities shows evidence that private production may be more efficient. If refuse collection were turned over to private enterprise on the basis of some such evidence, the government's task does not end but rather is shifted, only. It has to find ways and means to set the conditions such that private producers function efficiently in the long run. In particular, it must insure that competitive pressure on costs persists.

Date: 1976
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