On Publicly Provided Services – Public or Private Production?

Working Papers 211 Eero Lehto

This study focuses on the production services which are purchased by the government. We consider whether the delivery of the service should be public or private. The social impact of the service is determined by the satisfaction of unforeseen individual needs. Assuming that the information about these needs is ex post observed only by the supplier of the service favours public production. Auctioning the right-to produce contract, however, selects the most cost-efficient private supplier. Whether private production is optimal resolves from the trade-off between cost efficiency and a failure in meeting individual needs. We also analyse investments in monitoring.

Keywords: Service production, public or private, auction
Published: 1.2.2005
JEL: L24, D44
ISBN: 952-209-011-5
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