Working paper 99/010 - Abstract

The Organisation of Government Bureaucracies: the Choice Between Competition and Single Agency

Maija Halonen and Carol Propper

Recent reforms of the public sector welfare provision have introduced competition between public sector suppliers. In this paper we analyse when a self-interested politician will introduce competition. Professionals who supply welfare services receive a private benefit from working but may put different weighting on the types of customers from their proportions in the population. When public suppliers have to compete for contracts the level of effort is increased. More importantly, the balance of effort is altered. Competition forces professionals to allocation of effort that better represents the proportions in the population. However, competition will also be more expensive than a single public supplier as a result of the increase in quality. A self-interested politician will choose competition only if these additional costs are outweighed by the benefits.

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