The Mythology of Privatization in Contracting for Social Services

States and municipalities have privatized services in an effort to improve their cost‐effectiveness and quality. Competition provides the logical foundation for an expectation of cost savings and quality improvements, but competition does not exist in many local marketplaces—especially in the social services, where governments contract primarily with nonprofit organizations. As government increases its use of contracting, it simultaneously reduces its own public‐management capacity, imperiling its ability to be a smart buyer of contracted goods and services. This article examines two questions about the privatization of social services based on interviews conducted with public and nonprofit managers in New York state: Does social services contracting exist in a competitive environment? And do county governments have enough public‐management capacity to contract effectively for social services? The findings suggest an absence of competition and public‐management capacity, raising the question of why governments contract when these conditions are not met.     

Wealth-destroying states

Public Choice - According to the contract theory of the state, individuals give up their freedom to a specialist in violence who then provides public goods, such as private property rights and...     

Social contract theory and the semiotics of guns in America

We present a semiotic model of gun possession in America based upon the social contract theories put forward by Locke, Rousseau, and Rawls. Our central focus is upon the rights of self-preservation and the protection of property. The model proposes that American political history has cycled between two sets of symbolic threats to the social contract: tyranny imposed by a despotic central government and chaos represented by outsiders designated as savages. We propose that the two central semiotic images presented in the origin myth of the USA – that of pioneers living on a savage frontier and citizens rebelling against tyrannical government – endorse the individual possession of firearms. The specific models of guns chosen by private citizens are found to be closely intertwined with military patterns of usage; thus, the US military seems to serve as a rhetorical vessel from which cultural ideals of appropriate weaponry are derived. Examples of American autobiographical writings, contemporary gun advertising, and popular culture fictional narratives are presented to ground the arguments. We conclude that individual access to the use of deadly force for self-defense and the defense of property is the semiological basis of the American social contract and that US government efforts to reduce civilian possession of firearms are unlikely to succeed.     

On the use of auctions as a disposition strategy for RTC real estate assets: A policy perspective

Abstract

A sound strategy for real estate asset disposition is of paramount importance to the Resolution Trust Corporation (RTC) in its efforts to maximize costs resulting from the savings and loan bailout. A popular current approach to this problem is to employ expeditious sales structures such as auctions. Although auctions clearly speed up the disposition process, it is unclear whether they maximize net revenues. This paper analyzes the potential of auction structures to maximize sales revenue when such structures are applied to RTC commercial and residential real estate assets.

Absent political constraints, we conclude that auctions are usually inferior to traditional listing and broker sales channels. For the commercial real estate sector, this conclusion is based on the prominence of information‐acquisition costs, on market thinness on the buyer side, and on continued uncertainty regarding local economic recovery. Our conclusion for the residential real estate sector is based on the degree of property concentrations and the apparent inferiority of auctions for residential properties in weak markets. A recognition of short‐term political reality bolsters the case for auction approaches; however, the RTC should clearly stop promoting an image that it wishes to “sell, sell, sell.”     

Do too many cooks always spoil the stew? An experimental analysis of rent-seeking and the role of a strategic buyer

Laboratory methods are used to evaluate the effects of institutional arrangements and rent-defending activity on rent-seeking auction outcomes. In part, Nash equilibrium predictions are a useful behavioral guide: As predicted, more rents are dissipated in perfectly-discriminating auctions, where the high-bidder wins, than in lotteries, where relative bids determine the chance of winning. Also as predicted, the introduction of a rent-defending buyer reduces social costs. Nevertheless, the social costs of rent-seeking consistently exceed predicted levels. Moreover, individual bidding, especially by buyers, deviates markedly from Nash predictions.     

Privatization,bureaucracy, and risk aversion

The role of governmental risk aversion in the decision to privatize the production of goods and services has not been examined closely. Using a model of a risk-averse, single-service Niskanen bureaucrat, we determine the conditions under which a bureaucrat will prefer to privatize rather than produce in-house. If the private-sector firm is risk neutral, the result will be a fixed-fee contract with complete insurance. If the private-sector firm is risk averse, the result will be a cost-plus contract with the degree of cost sharing determined by the bureaucrat's share of total risk aversion. In both cases, the bureaucrat's sponsor may affect the likelihood of privatization by manipulating the rewards and penalties imposed on the bureaucrat.     

The influence of foreign direct investment on contracting confidence in developing countries

This paper examines whether foreign direct investment (FDI) influences confidence in commercial contracts in developing countries. While the research on how host countries’ policy environments encourage FDI inflows has flourished, scholars have paid less attention to how the policy environment and local actors’ beliefs might, in turn, be affected by FDI. This is surprising because multinational enterprises are well‐recognized political and economic actors across the world. We expect that their increasing economic salience will influence the policy environments in which they function. By employing an innovative measure of property rights protection – contract‐intensive money – we examine how foreign direct investment influences host countries’ contract‐intensive money ratio in a large panel time series of both developed and developing countries from 1980 to 2002. Our analysis suggests that higher levels of FDI inflows are associated with greater confidence in commercial contracts and, by extension, the protection of property rights in developing countries.     

The risky business of public–private partnerships

Public–private partnerships (PPPs) are now a common strand of third way government policy, with better efficiency promised from the private funding of public infrastructure through the transfer of risks to private parties. This paper aims to investigate, on an empirical basis, the realities of risk transfers in PPPs and compare this experience against both the rhetoric of project proponents and the formal contract conditions. The paper outlines some conceptual frameworks underpinning PPPs and establishes the notions of risk shifting and risk sharing. The range of typical risks encountered in infrastructure projects is specially considered, and differences to traditional project delivery arrangements are articulated. Some empirical experience on the transfer of risks under PPPs is then outlined through a case study. This analysis shows the extent to which risks were shifted to the private parties as planned, or whether risks remained with government. It is argued that while commercial risks were largely well managed, governance risks were not. It is critical to understand better the nature of risk transfers in PPPs in view of the large financial implications of these deals along with long contract terms.     

Polarization,Politics and Property Rights: Links Between Inequality and Growth

We argue that social polarization reduces the security ofproperty and contract rights and, through this channel,reduces growth. The first hypothesis is supported by cross-country evidence indicating that polarization in the form ofincome inequality, land inequality, and ethnic tensions isinversely related to a commonly-used index of the security ofcontractual and property rights. When the security of propertyrights is controlled for in cross-country growth regressions,the relationship between inequality and growth diminishesconsiderably. This and other evidence provides support for oursecond hypothesis, that inequality reduces growth in partthrough its effect on the security of property rights.     

Principles of Autonomy*

Autonomy has two faces, individual autonomy and institutional autonomy. Political systems not only deal with demands for individual freedom, the traditional rights of citizens to freedom of opinion, association and contract. Institutional autonomy is a pervasive property of all kinds of political systems. To international political systems just as to local and regional political systems, autonomy is a basic property. Both types of systems face the difficult task of maintaining stable relations with the nation state, securing an amount of control for the nation state while retaining some autonomy for themselves. The demand of various regions for independence or semiindependence within nation states has been a dominant theme in the politics of the sixties and the seventies. The autonomy of the nation state is its sovereignty. International political systems present a threat to the autonomy of the nation state, while at the same time they may provide mechanisms by means of which other sources of infringements on autonomy may be counteracted. Autonomy is a fundamental political property. A theoretical understanding of autonomy is conducive to the explanation of those aspects of political systems that are related to stability. Such an interpretation may place autonomy in an equilibrium analysis of how demand and supply of autonomy interacts with other basic political properties like influence and control.     

Incentives in Third‐Party Governance: Management Practices and Accountability Implications

Contract incentives are designed to motivate contractor performance and to provide public managers with a powerful tool to achieve contract accountability. Our knowledge of contract incentives is rooted in contract design, yet as we move beyond contract specification and further into the contract lifecycle, we know little about why and how managers implement incentives. This study assesses public managers’ use of contract incentives in practice and advances theory development. A typology of contract incentives is constructed to capture a comprehensive range of formal and informal incentives, and the factors that influence managerial use of incentives are identified. The findings shed light on the complexities of maintaining accountability in third‐party governance structures and the management techniques aimed at improving the performance of public agencies.     

A constitutional interpretation of the firm

When members of a firm make firm-specific investments they will earn rents. Potential rent-seeking on the part of the owner of the firm and other employees reduces the value of an employee's firm-specific investment and, as a result, reduces the level of those investments. In this context the firm can be thought of as a set of interdependent relationships where the actions of any one individual can affect the rents of all others. The owner of the firm will desire to set up an institutional arrangement to protect the individual's property rights in specific investments as part of his effort to maximize profit. Establishing this institutional arrangement is similar to the establishment of a constitution by the state or other organization. This constitution protects the property rights of the members of the firm and as a result encourages the creation of property, that is, the firm-specific investments. The constitution of a firm consists of a set of interdependent explicit and implicit contracts between the firm and its various members, as well as mechanisms for enforcing and monitoring these contracts. As a practical matter, it is obvious that workers normally do not enjoy costless or near-costless mobility, and thus an ordinary “at will” employment contract may no longer be sufficient to induce workers to join a firm. If, in order to function productively within an enterprise, individuals have to accumulate, and pay for, firm-specific capital assets, the simple neoclasical logic fails (Furubotn, 1988: 167).     

Managing contract performance: A transaction costs approach

Managing contracts is a complex process, often exacerbated by high transaction costs inherent in negotiating, implementing, and monitoring contract relationships with vendors. Through analyses of data from a 1997 International City/County Management Association survey of municipal and county governments, the way in which municipal and county governments respond to transaction cost factors inherent in contract service delivery is examined. The results of the analyses demonstrate that when governments contract for services in contexts that risk contract failure, they engage in a variety of monitoring techniques to improve their ability to monitor and correct vendor performance. © 2003 by the Association for Public Policy Analysis and Management.     

Leader Survival,Revolutions, and the Nature of Government Finance

Leaders face multiple threats to their political survival. In addition to surviving the threats to tenure from within the existing political systems, which is modeled using Bueno de Mesquita and colleagues' (2003) selectorate theory, leaders risk being deposed through revolutions and coups. To ameliorate the threat of revolution, leaders can either increase public goods provisions to buy off potential revolutionaries or contract the provision of those public goods, such as freedom of assembly, transparency, and free press, which enable revolutionaries to coordinate. Which response a leader chooses depends upon existing institutions and the structure of government finances. These factors also affect the likelihood and direction of institutional change. Tests of leader survival indicate that revolutionary threats increase the likelihood of deposition for nondemocratic leaders. Leaders with access to resources such as foreign aid or natural resource rents are best equipped to survive these threats and avoid the occurrence of these threats in the first place.     

Institutional Analysis of Neighborhood Collective Action

Sublocal governance organizations may provide a way for some urban neighborhoods to stabilize and improve property values. Recent advances in collective action theory, spatial statistical methods, and data availability now make it possible to more directly evaluate the effects of these organizations. The analysis combines geocoded assessor's data and data from a survey of neighborhood and homeowner associations to analyze a model of prices of single‐family homes in Little Rock, Arkansas, from 2012 to 2016. The results show that neighborhood and homeowner associations both have significant positive effects on neighborhood property values relative to unorganized neighborhoods and that the effect of neighborhood associations is at least as large as that of homeowner associations. Moreover, the results indicate that neighborhood association structure mediates the effect on property values, although this is not the case for homeowner associations.     

Contracting for Indigenous Health Care: Towards Mutual Accountability

In Australia and other industrialised countries, governments contract with the non‐government sector for the provision of primary health care to indigenous peoples. Australian governments have developed policies and funding programs to support this health sector, but the current arrangements are unduly complex and fragmented. The results of our study show that the complex contractual environment for Aboriginal Community‐Controlled Health Services (ACCHSs) and their funders is an unintended but inevitable result of a quasi‐classical approach to contracts applied by multiple funders. The analysis in this article highlights potential policy and program changes that could improve the effectiveness of funding and accountability arrangements, based on the use of an alliance contracting model, better performance indicators and greater clarity in the relative roles of national and jurisdictional governments.     

Attitudes toward technology and risk: Going beyond what is immediately given

In this paper, perceived risk and attitudes toward technology are considered in a wide contextual perspective. Risk perception data are related to technology and technology attributes, in particular with respect to the possibility of replacing a technology, to the belief that it may have as yet unknown effects, and have effects involving a destructive relationship with Nature. These contextual characteristics of a hazard are shown empirically to add powerful explanatory force to models of risk perception of attitudes toward technology. The risk concept is then further differentiated. Risk as a property of an activity is distinguished from risk as a property of an unwanted consequence (injury), the latter being clearly more important for policy attitudes. It is also found that the operational definition of risk and trust is an important factor in determining the relationship between these two concepts. Detailed study of gene technology and nuclear power showed that these hazards were particularly amenable to mapping with risk perception concepts of the kind applied here. In the case of gene technology it was also found that consumer intentions displayed much the same risk perception dynamics as policy attitudes.     

When public principals give up control over private agents: The new independence of ICANN in internet governance

In 2016, the United States (US) government relinquished its long‐standing delegation contract with the Internet Corporation for Assignment of Names and Numbers (ICANN), a private organization that governs the technical infrastructure of the internet. This presents a puzzle as the US not only gave up a power resource, but also relinquished the possibility, as a public principal, to hold the private agent ICANN accountable. I argue that public principals have incentives to leave control in the hands of private stakeholders when a delegation contract is exposed to external pressure by powerful outside states and the probability of extensive policy changes by the privatized agent is limited. The analysis shows that the unilateral US control over ICANN was strongly challenged by other states and private actors. Instead of granting a greater role to rising powers in internet governance, the US gave up its unilateral influence after internal reforms limited the risk that an independent ICANN could deviate too far from former policies.     

Randomization in coalition contracts

This article analyzes a much debated clause in the coalition contract between SPD and FDP in Rheinland-Pfalz. Two parties write a contract, based on which decisions under incomplete information have to be made at a later point in time. It is shown that a complex complete contract can achieve the first best outcome. However, a simple incomplete contract can implement the first best outcome only if use of seemingly inefficient randomization is made.     

Information Technology Outsourcing by State Governments in Australia

Outsourcing of IT services is being undertaken at a rapid rate within the public sector in Australia. This paper investigates the adoption of this practice by a sample of state government enterprises and departments from South Australia, Victoria and New South Wales which have tendered long-term IT outsourcing contracts.
The motivation, decision-making process and extent of outsourcing are examined in further detail. In addition, the tendering process, contract and risk management are investigated to determine whether consideration has been given to the full economic costs involved in entering into longer term contracts.