Cronyism in Business, Public Sector and Politics

This paper contrasts the incentives for cronyism in business, the public sector and politics within an agency problem model with moral hazard. The analysis is focused on the institutional differences between private, public and political organizations. In business, when facing a residual claimant contract, a chief manager ends up with a relatively moderate …rst-best level of cronyism within a …firm. The institutional framework of the public sector does not allow explicit contracting, which leads to a more severe cronyism problem within public organizations. Finally, it is shown that the nature of political appointments (such that the subordinate's reappointment is conditioned on the chief's re-election) together with implicit contracting makes political cronyism the most extreme case. JEL classifi…cation: D72, D73, D86. Keywords: Cronyism; Meritocracy; Manager; Bureaucrat; Politician.

Un partenariat public-privé rigide ou flexible ? Théorie et application aux concessions routières à péage

In this article, we explore the contractual design of toll road concession contracts. We highlight the fact that contracting parties try to sign not only complete rigid contracts in order to avoid renegotiations but also flexible contracts in order to adapt contractual framework to contingencies and to create incentives for cooperative behavior. This gives rise to multiple toll adjustment provisions and to a tradeoff between rigid and flexible contracts. Such a tradeoff is formalized using an incomplete contract framework - including ex post maladaptation and renegotiation costs - and propositions are tested using an original database of 71 concession contracts. Our results suggest an important role for economic efficiency concerns, as well as politics, in designing such public-private contracts. Codes JEL : D23, H11, H54, L14, L9.

The Andalusian Public Health System Virtual Library. Four years on

The Andalusian Public Health System Virtual Library (Biblioteca Virtual del Sistema Sanitario Público de Andalucía, BV-SSPA) set up in June 2006 was determined by the II Quality Plan 2005-2008. It consists of a regional government action with the aim of democratizing the health professional access to quality scientific information, regardless of the professional workplace. Andalusia is a region with more than 8 million inhabitants, with 92,000 health professionals for 41 hospitals, 1,500 primary healthcare centres, and 10 centres for non-medical attention purposes. • To obtain documentary resources for health professionals. • To help citizens to find health information. • To coordinate the Andalusian Health Documentary centres. • To establish strategic agreements with organizations. • To contribute to the Knowledge Management Development • The BV-SSPA acquires in a centralised way, all of the information resources for the whole system. • It offers services for all professionals: o Document Supply Service o Online Learning o User service • Remote access to these resources and services. • Communication and marketing plan to promote the knowledge and use of the BV-SSPA. Presently the BV-SSPA has reached: • The subscription of 2,431 electronic reviews, 8 data bases and other scientific information resources. • The establishment of the Document Supply Service, which focuses all the article orders from and for the Andalusian Public Health System. • The starting up for the online learning platform. • The introduction of the user service and virtual reference service in beta mode. • The use of appropriate tools, as the meta-researcher and the link resolver, which allow the presentation of resources and services in a tidy, easily findable way, through a Web 2.0 page where the user can take part with his contributions and where his offers and suggestion are gathered. • Access to the resources, for the Andalusian Health Professionals worldwide requiring only an internet connection. Andalusian Health Professionals have access to the greatest Health Science Electronic Resources Collection in Spain. The BV-SSPA has become the undisputed medium for the Health Research and Clinical Healthcare in our region, being consolidated as the Knowledge Manager into the Andalusian Public Health System. In 2010, it faces new projects such as the institutional repository creation, HypatiaSalud; the analysis of our research activity; and the drafting of a normalised licence model for the contracting of electronic resources.

Cost efficiency in primary care contracting: A stochastic frontier cost function approach

The principal aim of this paper is to estimate a stochastic frontier costfunction and an inefficiency effects model in the analysis of the primaryhealth care services purchased by the public authority and supplied by 180providers in 1996 in Catalonia. The evidence from our sample does not supportthe premise that contracting out has helped improve purchasing costefficiency in primary care. Inefficient purchasing cost was observed in thecomponent of this purchasing cost explicitly included in the contract betweenpurchaser and provider. There are no observable incentives for thecontracted-out primary health care teams to minimise prescription costs, whichare not explicitly included in the present contracting system.

Cultural Biases in Public Service Delivery : Evidence from a Regression Discontinuity Approach

What determines the share of public employment, at a given size of the State, in countries of similar levels of economic development? While the theoretical and empirical literature on this issue has mostly considered technical dimensions (efficiency and political considerations), this paper emphasizes the role of culture and quantifies it. We build a representative database for contracting choices of municipalities in Switzerland and exploit the discontinuity at the Swiss language border at identical actual set of policies and institutions to analyze the causal e↵ect of culture on the choice of how public services are provided. We find that French-speaking border municipalities are 50% less likely to contract with the private sector than their German-speaking adjacent municipalities. Technical dimensions are much smaller by comparison. This result points out that culture is a source of a potential bias that distorts the optimal choice for public service delivery. Systematic differences in the level of confidence in public administration and private companies potentially explain this discrepancy in private sector participation in public services provision.

Mixed and Hybrid Models of Public Service Delivery

This symposium presents research from different contexts to improve our collective understanding of a variety of aspects of mixed forms of service delivery, be they mixed contracting at the level of the market (which is more common in the U.S.), or mixed management and ownership at the level of the firm (which is more common in Europe). The articles included in this special symposium examine the factors that give rise to mixed forms of service delivery (e.g., economic and fiscal stress, regulatory flexibility, geography, management) and how these factors impact their design and operation. Articles also explore the performance of mixed forms of service delivery relative to more conventional arrangements like contracted or direct service delivery. The articles contribute to a better theoretical and conceptual understanding of mixed/hybrid forms of services delivery.

Recovery Risk and Labor Costs in Public-Private Partnerships : Contractual Choice in the US Water industry

We use an ordered logistic model to empirically examine the factors that explain varying degrees of private involvement in the U.S. water sector through public-private partnerships. Our estimates suggest that a variety of factors help explain greater private participation in this sector. We find that the risk to private participants regarding cost recovery is an important driver of private participation. The relative cost of labor is also a key factor in determining the degree of private involvement in the contract choice. When public wages are high relative to private wages, private participation is viewed as a source of cost savings. We thus find two main drivers of greater private involvement: one encouraging private participation by reducing risk, and another encouraging government to seek out private participation in lowering costs.

Are Public Private Partnerships that Rigid ? And Why ? : Evidence from Toll Road Concession Contracts

Transport concession contracts are commonly said to be standardized and too rigid. They would not allow public authorities to adapt them to evolving context and circumstances. This paper aims at challenging this view and, more particularly, the view that contractual rigidity for transport concessions is exogenous. Using a transaction cost framework, we disentangle between three main determinants of contractual rigidity: traffic uncertainty; connivance between contracting parties; quality of the institutional environment. Using an original database of toll road concession contracts, we observe a great variety of provisions for toll adjustment. We find that these exogenous determinants significantly influence contractual choices.

Performance-based contracting in the construction sector

Construction procurement is complex and there is a very wide range of options available to procurers. Inappropriate choices about how to procure may limit practical opportunities for innovation. In particular, traditional approaches to construction procurement set up many obstacles for technology suppliers to provide innovative solutions. This is because they are often employed as sub-contractors simply to provide and install equipment to specifications developed before the point at which they become involved in a project. A research team at the University of Reading has developed a procurement framework that comprehensively defines the various options open to procurers in a more fine-grained way than has been known in the past. This enables informed decisions that can establish tailor-made procurement approaches that take into account the needs of specific clients. It enables risk and reward structures to be aligned so that contracts and payment mechanisms are aligned precisely with what a client seeks to achieve. This is not a “one-size-fits-all” approach. Rather, it is an approach that enables informed decisions about how to organize individual procurements that are appropriate to particular circumstances, acknowledging that they differ for each client and for each procurement exercise. Within this context, performance-based contracting (PBC) is explored in terms of the different ways in which technology suppliers within constructed facilities might be encouraged and rewarded for the kinds of innovation sought by the ultimate clients. Examples from various industry sectors are presented, from public sector and from private sector, with a commentary about what they sought to achieve and the extent to which they were successful. The lessons from these examples are presented in terms of feasibility in relation to financial issues, governance, economics, strategic issues, contractual issues and cash flow issues for clients and for contractors. Further background documents and more detailed readings are provided in an appendix for those who wish to find out more.

Regulating State Aid: Inter-jurisdictional competition, public choice, and corporate governance

Depending on the regulatory regime they are subject to, governments may or may not be allowed to hand out state aid to private firms. The economic justification for state aid can address several issues present in the competition for capital and the competition for transfers from the state. First, there are principal-agent problems involved at several stages. Self-interested politicians might enter state aid deals that are the result of extensive rent-seeking activities of organized interest groups. Thus the institutional design of political systems will have an effect on the propensity of a jurisdiction to award state aid. Secondly, fierce competition for firm locations can lead to over-spending. This effect is stronger if the politicians do not take into account the entirety of the costs created by their participation in the firm location race. Thirdly, state aid deals can be incomplete and not in the interest of the citizens. This applies if there are no sanctions if firms do not meet their obligations from receiving aid, such as creating a certain number of jobs or not relocating again for a certain amount of time. The separation of ownership and control in modern corporations leads to principal-agent problems on the side of the aid recipient as well. Managers might receive personal benefits from subsidies, the use of which is sometimes less monitored than private finance. This can eventually be to the detriment of the shareholders. Overall, it can be concluded that state aid control should also serve the purpose of regulating the contracting between governments and firms. An extended mandate for supervision by the European Commission could include requirements to disincentive the misuse of state aid. The Commission should also focus on the corporate governance regime in place in the jurisdiction that awards the aid as well as in the recipient firm.

Inseparable, incapable, or invisible: Why public organizations award no-bid contracts

No-bid contracting is a highly prevalent practice in public procurement of technology services. Alt-hough no-bid contracting is a substantial problem since it reduces competition and welfare, the litera-ture lacks theoretical explanations and empirical tests for why public organizations award no-bid con-tracts. In this paper, we propose three theoretical explanations for no-bid contracting, drawing on transaction cost economics, organizational learning, and institutional theory. We also present how we test these explanations using a comprehensive sample of public procurement transactions. We expect to contribute theoretical explanations for no-bid contracting and practical implications for policy-makers.

Public Procurement Law and Health care: From Theory to Practice. Research Paper in Law, 2/2010

From the Introduction. This contribution will focus on the core question if, how and to what extent the EU procurement rules and principles (may) affect the national health care systems. We start our analysis by summarizing the applicable EU public procurement legislation, principles and soft law and its exact scope in relation to health care. (section 2). Subsequently, we turn to the parties in a contract, subject to procurement rules in the field of health care, addressing both the definition of contracting authorities and relevant case law (section 3). This will then lead to an analysis of possible justifications for not holding a tender procedure in the field of health care (section 4). Finally, we illustrate the impact of EU public procurement rules on health care by analysing a Dutch case study, in which the question whether public hospitals in the Netherlands qualify as contracting authorities in terms of the Public Sector Directive stood central (section 5). Our conclusions will follow in section 6.