Objective

To abtain insight in the pros and cons of privatisation versus public management, and more generally, the relative efficiency of markets versus hierarchical organisations.

Content

The past two decades have shown a re-evaluation of the merits of decentralised decision making via markets relative to that of hierarchical structures. The present course considers the theoretical arguments that determine the relative performance of markets and hierarchies. Though these arguments can be applied in the public as well as in the private sector (e.g. the outsourcing of parts of the production process, the make-or-buy decision), we shall give special attention to the hazards of political decision making and the prospects for privatisation. 

The course will consider a number of important trade offs that play a role in the choice between the public and private provision of particular types of services: insurance of the market risk versus incentives for efficient management, flexibility of political decision makers to interfere versus their commitment to make management responsible, incentives to reveal private information versus the risk of (adverse) selection and the (ab)use of monopoly power. 

The aim of the course is to show that many problems of institutional design can be reduced to one or more of these trade offs and in this way, to provide framework that allows students to classify and compare them. The course considers a number of institutional and regulatory settings, that allow parts of these problems to be remedied, like benchmarking, voucher systems, profit and cost centres etc.

Required Literature

Lecture notes and a reader with recent articles from academic journals.

					5-7-2002