The authors thank the editor and the anonymous referees for their useful comments and suggestions. We thank participants at CORE seminar (2005), CEPR ESF Exploratory Workshop (Bristol 2006), CESifo meeting (Munich 2006) and the IDEI conference on ‘Health Economics and the Pharmaceutical Industry’, (Toulouse 2008). All remaining errors are ours.
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Government Outsourcing: Public Contracting with Private Monopoly†
Article first published online: 17 JUL 2009
DOI: 10.1111/j.1468-0297.2009.02291.x
© The Author(s). Journal compilation © Royal Economic Society 2009
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How to Cite
Auriol, E. and Picard, P. M. (2009), Government Outsourcing: Public Contracting with Private Monopoly. The Economic Journal, 119: 1464–1493. doi: 10.1111/j.1468-0297.2009.02291.x
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Publication History
- Issue published online: 4 SEP 2009
- Article first published online: 17 JUL 2009
- Submitted: 21 November 2006 Accepted: 24 November 2008
- Abstract
- Article
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- Cited By
The article studies the impact of the government budget constraint on the regulation of natural monopolies in adverse selection contexts. The government maximises total surplus but incurs some cost of public funds à laLaffont and Tirole (1993). Government outsourcing is proposed as an alternative to regulation in which firms freely enter the market and choose their prices and output levels. However the government can contract ex post with the private firms. This ex post contracting set-up allows more flexibility than regulation where governments commit to both investment and operation cash-flows. This is especially relevant in case of high technological uncertainties.