More on the choice between public and private production of a publicly funded service

Conclusion

Overall, the empirical findings we reported in our 1987 article are strongly suggestive of the importance of nonmonetary considerations in the production mode choice. Nonetheless, Professor Pack is quite correct to note that our conclusion (1987: 225–226) overstates the evidence we presented for the primacy of nonmonetary factors in the production mode choice when her “full” model is considered. Regarding the “full” model, despite the statistically significant findings for some demographic variables, a formal theoretical model of their effects on the production mode choice is lacking. Notwithstanding Pack's comments concerning scale economies, we are persuaded that the theoretic void regarding the effects of demographic variables on the production mode choice still exists.

However, this statement should not be interpreted as a suggestion on our part that demographic variables are unimportant or irrelevant as far as the choice of production mode is concerned. Professor Pack's intuition that the variables capture some aspect of the choice is almost certainly correct. Although our article offered some tentative speculations about the variables' role in the choice (1987: 223–224), no one, including both Pack and ourselves, has yet offered a theoretical model that incorporates the factors for which these variables are acting as proxies. In this respect, Pack's comment misses an opportunity to expand and extend our theoretical model. But we concur with Pack's suggestion that more systematic theoretical and empirical analyses are needed to more completely elucidate the nature of the public sector production mode choice.