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.
Keywords
IncentiveScope (computer science)Government (linguistics)BusinessQuality (philosophy)Service (business)Cost reductionService providerPublic economicsMicroeconomicsEconomicsMarketingComputer science
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Publication Info
- Year
- 1997
- Type
- article
- Volume
- 112
- Issue
- 4
- Pages
- 1127-1161
- Citations
- 1763
- Access
- Closed
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Cite This
Oliver Hart,
Andrei Shleifer,
Robert W. Vishny
(1997).
The Proper Scope of Government: Theory and an Application to Prisons.
The Quarterly Journal of Economics
, 112
(4)
, 1127-1161.
https://doi.org/10.1162/003355300555448
Identifiers
- DOI
- 10.1162/003355300555448