Discussion Paper Details

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Title: Choice and Competition in Public Service Provision

Author(s): Timothy J. Besley and James M Malcomson

Publication Date: August 2016

Keyword(s): Choice, Competition, Not-for-profit and Public Service

Programme Area(s): Public Economics

Abstract: In spite of a range of policy initiatives in sectors such as education, health care and legal services, whether choice and competition is valuable remains contested territory. This paper studies the impact of choice and competition on different dimensions of quality, examining the role of not-for-profit providers. We explore two main factors which determine whether an alternative provider enters the market: cost efficiency and the preferences of an incumbent not-for-profit provider (paternalism). The framework developed can incorporate standard concerns about the downside of choice and competition when consumer choice is defective (an internality) or choice imposes costs on those who do not switch (an externality). The paper considers optimal funding levels for incumbents and entrants showing when the 'voucher'? provided for consumers to move to the incumbent should be more or less generous than the funding for consumers who remain with the incumbent. Finally, the model also offers an insight into why initiatives are frequently opposed by incumbent providers even if the latter have not-for-profit objectives.

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Bibliographic Reference

Besley, T and Malcomson, J. 2016. 'Choice and Competition in Public Service Provision'. London, Centre for Economic Policy Research.