Abstract
The public choice literature contains little formal analysis of the bureaucratic choice of production modes — public or private — of publicly funded services. An important question to be addressed is why some governmental bodies choose to provide a publicly funded service with publicly owned and operated production units whereas other governmental bodies contract with private firms to provide the same publicly funded service. This paper is the first formal attempt to remedy this gap in the literature. We develop a theoretical explanation of the government decision maker's choice between public and private production modes based on utility maximizing behavior. We then examine empirically this choice employing logit analysis. The empirical results, which include several tests for robustness, confirm our theoretical explanation. The results are significant and suggest that non-monetary constraints are an important factor affecting this choice of production modes and that monetary constraints are less influential.
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The authors would like especially to acknowledge the comments and suggestions of Louis De Alessi. Additional comments were provided by Cecil E. Bohanon, Thomas E. Borcherding, James S. Cunningham, Philip R.P. Coelho, James V. Koch, Walker A. Pollard, and George J. Stigler. Earlier versions of this paper were presented at the 1983 Western Economic Association Meeting in Seattle and the 1985 Public Choice Society Meeting in New Orleans.
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McGuire, R.A., Ohsfeldt, R.L. & van Cott, T.N. The determinants of the choice between public and private production of a publicly funded service. Public Choice 54, 211–230 (1987). https://doi.org/10.1007/BF00125647
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DOI: https://doi.org/10.1007/BF00125647