Contractual Arrangements and the Provision of Public Interest Services: A Transaction Cost Analysis

Extract

Economists are showing an increasing interest in alternative organizational arrangements for delivering public interest services. More specifically, the involvement of private operators has been called into question in light of market failures. Following the UK privatization program in the 1980s, one might look there for a model for transferring ownership of infrastructure utilities from the public to the private sector. Such transfer of ownership is based on the idea that market forces and private ownership can lead to better performance, for instance by insulating management from political interference (see Boyco-Shleifer 1995 for a specific model and Vickers-Yarrow 1991 and Vining-Boardman 1992 for a more general discussion on this issue). This increased control is believed to favour reduction of costs (and prices if competition exists), and improvement in quality and innovation. Solutions other than full privatization are also proposed, such as delegation contracts.