Beyond Ideology How to Administer Privatization for Vulnerable Populations

• In Event: African Politics & Public Administration Virtual Poster Session
  In Virtual Poster Session: Public Administration: Topics in Public Administration and Bureaucracy Virtual Poster Session

Abstract

This paper presents a model that incorporates two types of oversight schemes, fire alarms vs. police patrols, to explain what type of public services can be successfully privatized with or without effective monitoring activities. Privatization is a tool that governments love and hate depending on the administration’s ideology. The Obama administration decided not to renew contracts with private companies to provide federal prisons. The Trump administration rescinded the previous administration’s decision and welcomed private prisons. Now President Biden’s executive order will terminate federal private prison contracts. Beyond ideology, this paper suggests how prisons (or any other public services) can be managed better with what type of monitoring schemes. This paper focuses on the recipients of privatized services. Based on the political power of recipients, this model suggests different models of privatization. Privatized public services for vulnerable and voiceless populations are scrutinized in this paper.

Highlighting effective oversight to achieve successful privatization (quality service at low cost), we developed a formal model in which a government and recipient play a signaling game. In particular, we focus on asymmetric information between the government and recipient: the recipient knows the quality of the vendor by observing the quality of public service produced by the vendor, while the government knows only the probability distribution of the quality of the vendor. In this setting, the recipient may transmit information about the vendor by filing a complaint.

We consider two oversight schemes: fire-alarm and police-patrol (McCubbins and Schwartz 1984). Then the government determines whether to conduct on-site monitoring or to rely on complaint-based monitoring. On-site monitoring is a police-patrol activity that government regularly conducts even in the absence of recipients’ complaints. Complaint-based monitoring is a fire-alarm activity that government solely depends on citizens’ self-reporting.
The key departure of our model from the previous model is that there are four types of the recipient based on two dimensions: whether political power is strong or weak, and whether socio-economic power is strong or weak. Political and socio-economic powers are mutually enforcing, but not necessarily the same factors. Vulnerable populations are highly likely to have weak socio-economic power, but their political power depends on whether they are viewed positively or negatively by society (Schneider and Ingram 1993). Poor single moms and children have low socio-economic power, but they have advocacy groups and public opinion that support them, making their political power strong. Therefore, politicians are reluctant to fail them. Ex-convicts and illegal immigrants, by contrast, fall into a category of those with weak political power and low socio-economic status.

In our model, the costs of filing a complaint are low (high) for a recipient with strong (weak) socio-economic power. In addition, only a recipient with strong political power can punish the government if the quality of public services is low and the government does not address the problem

Our first result is that the government has an incentive to conduct costly oversight only if the recipient’s political power is strong, which reaffirms that strong political power is a necessary condition for political responsiveness of the government. Our second result is that fire-alarm is the optimal scheme when the recipient has strong socio-economic power, while police-patrol is optimal when the recipient’s socio-economic power is weak. With police-patrol, government can avoid privatization failure (poor services), where politicians in the government would have to pay a political cost in the next election.

The intuition behind this result is as follows. In fire-alarm, the government can notice the low quality of public services by the recipient’s complaint. If the recipient’s socio-economic power is strong, then the recipient can afford the costs of filing a complaint when the quality of public services is low. Therefore, there exists a separating equilibrium in which the recipient files a complaint if and only if the quality of public services is low. However, it is not the case for the recipient with weak socio-economic power because the recipient cannot afford such costs, which leads the recipient to be silent. Therefore, there exists a pooling equilibrium in which the recipient never files a complaint, which prevents the government from detecting the problem of public services.

Our model contributes to the literature by demonstrating the importance of the recipient’s socio-economic status in addition to the transaction costs of oversight in the context of the privatization of public services.

Authors

• Eunju Kang, National Defense University

• Myunghoon Kang, Bilkent University