Received theories suggest a possible cost-quality tradeoff when private outsourcing arrangements are used in public services. Using data from Brazilian prisons, our study provides evidence that contradicts this prediction: the prisons not only run at a lower cost, but also show similar or improved performance on a range of quality indicators. The attenuation of the cost-quality dilemma in our context is due to the hybrid management, which allocates control rights to a state-appointed public supervisor. We also discuss conditions in which the public supervisor may refrain from colluding with the private agent, therefore guaranteeing an effective monitoring of service quality.
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Cabral, S., Lazzarini, S.G. & de Azevedo, P.F. Private operation with public supervision: evidence of hybrid modes of governance in prisons. Public Choice 145, 281–293 (2010). https://doi.org/10.1007/s11127-009-9566-0
- Hybrid governance
- Public supervision
- Implicit contracts