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Privatization And The Effectiveness Of Monitoring Agencies, Alexander Volokh

Alexander Volokh

The privatization literature depicts the choice whether to contract out as a tradeoff between excessive private investment in quality-reducing cost saving and inadequate public investment in cost-increasing quality improvement, under circumstances where neither the amount of investment nor the cost or quality outcomes are contractible. This paper shows that a monitoring regime, which can verify the benefit of the service at a cost, can bring the investment levels of the private contractor closer to the optimum, while it may not be able to improve the performance of the public sector. Monitors can be captured, and the possibility of capture may …