Abstract
The past few decades have been characterized by a growing body of profit-seeking public service areas with the understanding that profit-seeking organizations will deliver public services more efficiently than government can. These sectors include, but are not limited to, health care, corrections, education and garbage collection. Governments have created quasi markets to attract private providers of services in these sectors, with varying results. Organizational economics has provided the primary explanation for quasi markets, but questions about the sought-for efficiencies actually realized through these markets persist. We integrate resource dependence theory and organizational economics to provide a more comprehensive explanation of the persistence of quasi markets.
Highlights
This paper conceptually explores resource dependence as a factor explaining the relative efficiency of profit-seeking firms in quasi markets
To clarify the role of resource dependence as a factor explaining the relative efficiency of profit-seeking firms in quasi markets, we first examine organizational economics wisdom in quasi markets (Section 2), including discussions of agency theory, property rights, transaction costs and probity hazard
How can we understand the tools governments have in reigning in probity hazard while encouraging efficiency? We argue that resource dependence links the complex social goals of government and the pursuit of efficiency
Summary
This paper conceptually explores resource dependence as a factor explaining the relative efficiency of profit-seeking firms in quasi markets. To clarify the role of resource dependence as a factor explaining the relative efficiency of profit-seeking firms in quasi markets, we first examine organizational economics wisdom in quasi markets (Section 2), including discussions of agency theory, property rights, transaction costs and probity hazard. An emphasis on managerial efficiency has led to increased contracting to profit seeking firms for public-service provision, creating spaces where profit-seeking firms compete with public organizations These spaces, known as quasi markets in the management literature (Ferlie 1994, 2002), are created intentionally by governments, with managerial efficiency in mind. Organizational economics has provided an important framework for how quasi-market economic activity can be understood differently, explaining that profit-seeking activity in the public sphere is generally not just delegation of activity to a frictionless marketplace, but rather, to organizations bounded by transactions costs (Coase 1960). As Coasian institutional economics extended into Agency and Property Rights paradigms, understanding the nature of public and private transactions costs helped develop an axiomatic privatization logic that argues for the superior efficiency of profit-seeking firms
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