THE CENTRE FOR MARKET AND PUBLIC ORGANISATION
The Centre for Market and Public Organisation, a Research Centre based
at the University of Bristol, was established in 1998. The principal aim of
the CMPO is to develop understanding of the design of activities within
the public sector, on the boundary of the state and within recently
privatised entities with the objective of developing research in, and
assessing and informing policy toward, these activities.
Centre for Market and Public Organisation
University of Bristol
Department of Economics
Mary Paley Building
12 Priory Road
Bristol BS8 1TN
Tel: (0117) 954 6943
Fax: (0117) 954 6997
E-mail: [email protected]
Contracting Out Public Service Provision to
Not-For-Profit Firms
John Bennett and Elisabetta Iossa
June 2005
Working Paper No. 05/124
ISSN 1473-625X
CMPO Working Paper Series No. 05/124
Contracting Out Public Service Provision to NotFor-Profit Firms
John Bennett1
and
Elisabetta Iossa2
1
2
Brunel University
Brunel University and CMPO
June 2005
Abstract
In an incomplete contract setting, we analyze the contracting out of public service provision, comparing
the performance of for-profit and not-for-profit private firms. Two institutional arrangements are
considered, control rights lying either with the firm as under the UK’s Private Finance Initiative (PFI)
or the government (as under traditional procurement). We derive the conditions under which provision
by not-for-profit firms leads to greater investment and social benefit than provision by for profit firms.
The role played by the non-distribution constraint in not-for profit firms and the nature of the
investment are emphasized.
Keywords: contracting out, not-for-profit firms, private finance initiative, public-private partnership,
incomplete contracts, public service provision
JEL Classification: H41, L31, L33
Acknowledgements
Financial support from the ESRC under grant R/000/22/3811 is gratefully acknowledged. For helpful
comments or discussions we wish to thank Bertrand du Marais, Paul Grout, Gabriella Legrenzi,
Michael Monoyios, Zoe Moss, Stephane Saussier and seminar participants at the Workshop on Public
Private Partnerships/Private Finance Initiative, 2004 (Brunel University, London) and the International
Workshop on Public Private Partnerships: Theoretical Issues and Empirical Evidences, 2004 (Paris).
Address for Correspondence
Elisabetta Iossa
Brunel Business School
Brunel University
Uxbridge
Middlesex
UB8 3PH
Website:
www.bris.ac.uk/Depts/CMPO/
CMPO is jointly funded by the Leverhulme Trust and the ESRC
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