TY  - JOUR
AU  - Hart,Oliver
AU  - Shleifer,Andrei
AU  - Vishny,Robert W.
TI  - The Proper Scope of Government: Theory and an Application to Prisons
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5744
PY  - 1996
Y2  - September 1996
UR  - http://www.nber.org/papers/w5744
L1  - http://www.nber.org/papers/w5744.pdf
N1  - Author contact info:
Oliver D. Hart
Department of Economics
Littauer Center 220
Harvard University
Cambridge, MA 02138
Tel: 617/496-3461
Fax: 617-495-7730
E-Mail: ohart@harvard.edu

Andrei Shleifer
Department of Economics
Harvard University
Littauer Center M-9
Cambridge, MA 02138
Tel: 617/495-5046
Fax: 617/496-1708
E-Mail: ashleifer@harvard.edu

Robert W. Vishny
Booth School of Business
The University of Chicago
5807 South Woodlawn Avenue
Chicago, IL  60637
Tel: 773/702-2522
Fax: 773/834-1920
E-Mail: Rvishny@gmail.com
AB  - When should a government provide a service inhouse and when should it contract out provision?  We develop a model in which the provider can invest in improving the quality of service or reducing cost.  If contracts are incomplete, the private provider has a stronger incentive to engage in both quality improvement and cost reduction than a government employee.  However, the private contractor's incentive to engage in cost reduction is typically too strong because he ignores the adverse effect on non-contractible quality.  The model is applied to understanding the costs and benefits of prison privatization.
ER  -