Abstract
We analyze the economic consequences of strategic delegation of the right to decide between public or private provision of governmental service and/or the authority to negotiate and renegotiate with the chosen service provider. Our model encompass both bureaucratic delegation from a government to a privatization agency and electoral delegation from voters to a government. We identify two powerfull effects of delegation when contracts are incomplete: The incentive effect increases the incentive part of service providers' remuneration and we show that strategic delegation may substitute formal incentive contracts. The bargaining effect improves the bargaining position vis a vis a private firm with market power and leads to a lower price for the service
| Original language | English |
|---|---|
| Publisher | Centre for Industrial Economics, Department of Economics, University of Copenhagen |
| Number of pages | 44 |
| Publication status | Published - 2007 |
Keywords
- Faculty of Social Sciences
- outsourcing
- strategic delegation
- incentives
- incomplete contracting
- market power