Output–Purchase Funding and Budgeting Systems in the Public Sector

Output–purchase funding systems are systems in which payments made to service delivery agencies by government are an explicit function of quantities of outputs delivered by those agencies. This article considers the feasibility of such systems for the funding of tax–financed public services. It focuses on the implications of key characteristics of public sector outputs and specifically upon the prevalence of heterogeneous outputs, the predominance of services (as opposed to physical goods), and the presence of many "contingent capacity services."