DP11441 Choice and Competition in Public Service Provision
|Author(s):||Timothy J. Besley, James M Malcomson|
|Publication Date:||August 2016|
|Keyword(s):||Choice, Competition, Not-for-profit, Public Service|
|JEL(s):||H11, H44, L21, L31|
|Programme Areas:||Public Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=11441|
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.