Competition and Efficiency in Publicly Funded Services

Abstract

OECD countries gradually open the provision of publicly funded services to competition. This article sets out an analytical framework focusing on incentives and information asymmetries between government as a principal and the agents supplying publicly funded services, and reviews how these issues are addressed by different forms of competition. Taking a wide perspective across different publicly funded services, the article reviews to what extent and how OECD countries have introduced competition, and it seeks to compare and explain the differences based on service characteristics. This review covers education, childcare, long-term care for elderly and employment services. In such services used by individuals there can be benefits from letting users chooseamong alternative suppliers, but developing appropriate regulation shaping the incentives of users and suppliers is essential. Alternatively, competitive tendering and contracting can be used, as is frequently done in OECD countries in technical and support services, including in areas where the final services are supplied via a public monopoly. Private finance of infrastructure investment plays a minor role so far.

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