NOT REPORTING A PROFIT: CONSTRUCTING A NON‐PROFIT ORGANISATION

Public sector reformers advocate contracting‐out as a means of improving cost‐effectiveness. In the health sector, market‐based contracts with for‐profit organisations can reduce equity of access and divert public funds to private gain. Such issues have prompted policy makers to seek alternative contracting strategies. This paper examines a primary health care policy whereby government contracts with private non‐profit organisations to increase efficiency and meet World Health Organisation ideals. The study found that the policy's implementation has not achieved these aims when for‐profit providers masquerade as non‐profit organisations. The implication is that governments may find it more effective to manage for structural diversity than mandate homogenisation.     

Dynamic effects of government policies in an open economy

The effects of three government policies, an increase in the provision of government services, an open market operation, and an increase in the rate of growth of government liabilities, are studied in a long-run model of a small open economy with flexible exchange rates. The government budget constraint, the degree to which government bonds are net wealth to the public, and the degree of substitutability of government services for private market purchases are all considered. The determination of the exchange rate and the adjustment of the accounts of the balance of payments to changes in government policy are explored.     

ECONOMIC ANALYSIS FOR HEALTH PROJECTS

This paper applies to the health sector a method of projectanalysis advocated recently by Devarajan, Squire, and Suthiwart-Narueput.A health project evaluation should establish a firm justificationfor public involvement; establish the counterfactual—whatwould happen with and without the project; and determine thefiscal effect of the project and the appropriate levels of feesin conjunction with project evaluation. The evaluation shouldalso acknowledge the fungibility of project resources and examinethe incentives both for high-level public servants to shiftgovernment resources away from project-funded activities tothose that have not been evaluated and for lower-level contractorsand civil servants to provide good or bad service. Market failuresin health services and insurance markets should serve as a startingpoint for economic analysis, not as a reason to ignore economicsin health projects. Project outputs should be predicted aftertaking into account the reaction of consumers and providersin the private sector as well as market structures of supply,demand, and equilibrium for health services.      

The Market for External Audit Services in the Public Sector: An Empirical Analysis of NHS Trusts

This study investigates the market for audit services in the UK National Health Service (NHS). The market has a number of interesting features, including the presence of the Audit Commission as a regulator, appointer and provider of audit services. Following a theoretical overview of audit pricing in the NHS, evidence is provided on the behaviour of private sector auditors in an environment where audit risk characteristics differ from the private sector. The research also investigates, for the first time in the public sector, the relationship between audit fees and non–audit (consultancy) fees. Comparisons are also drawn between audit fees in the public and private sectors in an analysis of audit fees by industry. Despite some key similarities, the study shows that a number of differences exist between private and public sector audit fee models. In particular, we find no evidence of Big 6 (or mid–tier) auditor premiums, but we do find a significant negative relationship between audit and consultancy fees providing support for the 'knowledge spill–over' hypothesis. In addition, the fees charged to trusts appear significantly lower than their private sector counterparts, despite trust auditors having additional duties to perform. Possible explanations for this finding are offered in the paper.     

The Response of Fundholding Family Doctors to Price Signals

The introduction of budgets for family doctors to purchase health services for their patients was a major part of the internal market reforms in the UK health service. The paper examines the response to price signals of 35 fundholding GP practices during the first four years of fundholding. Admissions increased and the private sector was used for a small level of provision, but great diversity was apparent between individual GP practices. Despite huge potential savings from changing referral patterns, only very minor changes were observed. GPs used the power of fundholding to instigate change in the services provided by existing suppliers rather than to respond to more attractive prices from alternative suppliers.     

Opting Out of Public Insurance: Is It Socially Acceptable?

The privatization of social services is being increasingly discussed. The market of social services is often characterized by market failures, like informational asymmetries, externalities, distributional problems, which all justify public intervention. But the quality of services provided by public authorities or by private insurers in the context of health insurance is different and could be observable. The public reimbursement of health care is often conditional on rules, like the choice of the physician or the hospital, that induce a disutility of using social insurance instead of private insurance. An alternative solution to a complete privatization is to allow some individuals to opt out. We can imagine that the government allows and even in some cases favors part of the population leaving the public health insurance system. We analyze the situations where the opting out is welfare improving. We then study the optimal policy depending on the characteristics of the economy considering a Rawlsian criterion.     

Infrastructure and Public Utilities Privatization in Developing Countries

Should governments in developing countries promote private ownershipand deregulated prices in noncompetitive sectors? Or shouldthey run publicly owned firms and regulate prices at the expenseof rents to insiders? A theoretical model is used to answerthese normative questions. The analysis focuses on the tradeoffbetween fiscal benefits and consumer surplus during privatizationof noncompetitive sectors. Privatization transfers control rightsto private interests and eliminates public subsidies, yieldingbenefits to taxpayers at the cost of increased prices for consumers.In developing countries, where budget constraints are tight,privatization and price liberalization may be optimal for lowprofitability industries but suboptimal for more profitableindustries. And once a market has room for more than one firm,governments may prefer to regulate the industry. Without a credibleregulatory agency, regulation is achieved through public ownership.     

ANIMAL HEALTH SERVICES: FINDING THE BALANCE BETWEEN PUBLIC AND PRIVATE DELIVERY

Growing fiscal deficits and greater awareness of the huge economiccost of often-inefficient government activities have renewedinterest in transferring the delivery of important servicesfrom the public to the private sector in developing countries.This article, drawn from a longer study, offers a frameworkfor determining the appropriate roles of the public and privatesectors in delivering animal health services, such as veterinarysurveillance, disease vector control, vaccination, clinicaltreatment of sick animals, inspection of livestock products,and veterinary research and extension. The profitability and therefore the supply of private veterinaryservices is governed by several factors arising from economiesof scale, such as the size of the livestock enterprises in thelocality, the nature of potential or actual diseases, and thetypes of animals raised in the production systems. Thus, inareas where private veterinary work is unprofitable or whereother types of market failure occur, economic or social concernsmay make some type of public intervention necessary. The transferof animal health services from the public to the private sectormust be done selectively, and government support may be neededto ensure the success of such transfers.      

Absence Management in the Public Sector: An Integrative Model?

Workforce absence rates in Britain have been found to be higher in the public sector than the private. The Government has set ambitious targets for the reduction of public sector absence rates and published a range of recommendations. The authors look at the ways the two sectors manage long-term absence. Although many public sector organizations, as well as some large private services ones, have systems in place, this article shows that these often contain structural weaknesses, and frequently do not operate in an integrated way. It is therefore concluded that many public organizations have some way to go to achieve the holistic approach to absence management advocated by the Government.     

CONTESTABLE MARKETS, TRADE, AND DEVELOPMENT

The design of policies to improve economic efficiency usingthe private sector as principal agent requires a clear understandingof the role of market structure. Contestability analysis, notten years old, provides a tool for the purpose. The conceptcan guide the government that wants to have it both ways: toprotect the public and smaller firms from the threat of monopolisticbehavior by large firms, at the same time allowing the largerfirms enough freedom to meet the requirements of efficiencyand to exercise entrepreneur ship. Perfect contestability provides a standard for ideal marketbehavior. A perfectly contestable market is one in which entryand exit are perfectly costless; in such a market, the mere(perpetual) threat of entry can enforce good conduct by incumbents.So long as sunk costs are zero, a potential entrant can undercutany excessive prices (or unnecessary costs) of incumbent firmsyet earn an attractive rate of return. Thus perfect contestabilityprecludes excessive profits and prices as well as waste andinefficiency, and it prevents predatory pricing. What contestability analysis means for policy in developingcountries is that an economy that wishes to take advantage ofavailable economies of scale can use the norms of behavior providedby the theory as a guide for regulation of its larger firms,instead of resorting to nationalization or to stifling restrictionsas the means to protect its infant industries and its consumers.Under this standard, the bounds on the firms' behavior set bythe regulations replicate those that would be enforced by marketpressures in an ideal state of perfect contestability. The articlegives a Nigerian example in which regulatory changes applyingthe theory promise to improve the performance of the electricutility market. Such methods can do more to promote the publicinterest than privatization, which often results in replacementof a state monopoly by a private monopoly.      

CURRENT ISSUES IN EXTERNAL ACCOUNTING OF PUBLIC AUTHORITIES AND PUBLIC ENTERPRISES IN WEST GERMANY

The performance of private enterprises (profit/loss) can only be judged by the results of executed plans. As no single measure of performance can be computed for public authorities, decisions on the budget are central to their activities. Budget disclosure is crucial, whereas the public monitoring of its execution is peripheral. Depreciation charges in the public sector do not represent the same kind of loss of value as in the private one, and the meaning of the item equity is different, too. The sectoral accounting of the Bundesbahn is set up according to the criteria 'range of production' and 'responsibility' as opposed to the traditional divisional accounting of public enterprises. This leads to a fictitious profit in the so called commercial sector of the Bundesbahn.     

Price and income elasticities of demand for modern health care: the case of infant delivery in the Philippines.

In the Philippines most women choose to deliver at home despite the presence of modern facilities. Policy-making requires a knowledge of the factors that determine that choice, especially in terms of variables like price and location, which are amenable to policy intervention. Over 2/3 of the babies born in low-income countries are delivered by traditional birth attendants who are uneducated and have no formal training. They are, however, available in rural areas, whereas 70-90% of the modern practitioners are in the cities. Recently efforts have been made to expand modern obstetrical services in developing countries, but few surveys are available documenting the impact of modern facilities on delivery patterns. The present survey collected data from 3075 women who had singleton births on the island of Cebu between 1983 and 1984, as well as data from 48 modern public and private health facilities and 88 modern and traditional health practitioners. For the analysis of these data an economic demand model was built, using the mixed multinomial logit technic to estimate relationships between delivery characteristics, mothers' characteristics, and delivery choice. Money prices were not a significant factor in the choices, but time prices were a significant consideration for the rural sample. Hours of availability were a significant factor for both urban and rural mothers, and availability of drugs was significant for the urban sample. Both rural and urban women preferred delivery by a midwife, trained or not, to delivery by a combination of doctors, nurses, and midwives. With few exceptions, income was not a significant factor, and having insurance (10% of the sample) increased the probability of choosing a modern private practitioner. Money price effects were inelastic; i.e., a price increase by modern facilities would not have much effect on the choice of these facilities, and lowering the price of modern public delivery services would do little to increase demand for them. Locating more public practitioners and facilities in rural areas could effectively increase the use of modern facilities by rural women. Both urban and rural women would increase their use of modern public away-from-home facilities if these facilities would increase their hours of operation. Having drugs available would also increase the use of the public away-from-home facilities. In both urban and rural samples, trained midwives were the practitioners of choice. Among rural women a rise in income would increase the likelihood of their choosing public and private away-from-home deliveries and home deliveries by private practitioners. From the point of view of public policy, the most significant implications of the study are: 1) decreasing travel time for rural women by locating modern facilities and practitioners in rural areas would increase the use of modern delivery services; 2) increasing hours of operation, increasing the availability of drugs, and providing trained midwives at public facilities would increase the use of modern delivery services; 3) decreasing money prices would not increase use of modern public delivery services; and 4) increasing the price for cost recovery would not decrease the use of modern public delivery services.     

Infrastructure Public-Private Partnerships Re-Defined: An Increased Emphasis on “Partnerships”

A public-private partnership, also known as a “P3,” is usually structured as a long-term lease of a municipal asset (such as a toll road, port, or airport) by a private investor (and/or operator). Five years ago, P3s were viewed by municipalities primarily as a means for raising capital, and maximizing the upfront proceeds was often viewed as the primary goal. Today's transactions are now being redefined with the goal of developing sustainable long-term partnerships between the public and private sectors. Governments are increasingly intent on realizing efficiencies by partnering with the private sector to achieve improved services and accelerate needed capital improvements. As a result of this redefining, the P3 has become an essential tool in governments' financial arsenal to manage the many challenges facing municipalities, including budget deficits, large pension obligations, and extensive infrastructure funding needs.     

New development: New global health care PPP developments—a critique of the success story

Health care public–private partnerships (PPPs), where clinical services as well as infrastructure are delivered by the private sector, are coming under the spotlight as governments seek to achieve value for money in health budgets. Existing examples have been widely reported as successful. However, this article urges caution as a closer look at the evidence shows that handing over control of service delivery to the private sector is difficult to monitor and evaluate, carries cost implications which remain largely unquantified and can create additional risk.     

The Private Finance Initiative in the National Health Service: An Unhealthy Development in New Public Management?

New Public Management has expanded the role of the private sector in the provision of public services through 'contracting out' the supply of many public service inputs to the private sector. This paper examines the case of the Private Finance Initiative (PFI), which is of increasing importance in extending these inputs to include those of major capital assets, such as hospital buildings. Concerns arise as to whether this process does genuinely increase efficiency and accountability, and over the role of accounting in meeting the new demands being placed upon it, in the context of one of the most sensitive public services, that of health care.     

Use of derivatives in public sector organizations

The present paper develops and tests a model explaining public sector derivative use in terms of budget discrepancy minimization. The model is different from private sector models. Private sector models do not readily translate into the public sector, which typically faces different objectives. Hypotheses are developed and tested using logistic regression over a sample of Australian Commonwealth public sector organizations. It is found that public sector organization derivative use is positively correlated with liabilities and size consistent with the hypotheses concerning budget discrepancy management.     

New development: Mutual solutions to shaping public service delivery

There have been a number of developments in approaches to public service delivery in the UK, partly as a response to austerity measures, as well as a shift to new models of public sector, private and third sector provision. This article considers the development of public service mutuals—those organizations that have spun out of the public sector, and where employees of the new providers play a key role in shaping and delivering public services at local and national levels. The authors identify areas where further work is needed to better understand these new models and to consider whether the perceived benefits associated with traditional mutual models are applicable when applied to public service provision.     

The governance of public bodies in times of austerity

Private sector governance arrangements have been imported into UK public bodies under the influence of New Public Management reforms. This paper draws on a cohort study of 14 public bodies to assess the appropriateness of this practice and the impact of fiscal austerity during the study period of 2010–16. Based on multiple sources, including interviews with Chairs and Chief Executives, it shows that, though similar to private corporate Boards in appearance, public Boards are often excluded from the strategy role. They are also vulnerable to the elastic definition of policy over which Ministers assert dominance, thereby blurring accountability. It demonstrates the tension between vertical accountability to government principals and horizontal accountability to stakeholders. During the study window, public bodies were abolished, broken up, merged, reconfigured or taken back into core government, as the UK Government imposed austerity measures to reduce the size of the fiscal deficit and to diminish government roles in delivery, financing and regulation of public services. Surviving public bodies in the study suffered deep budget cuts and less autonomy from central control. These findings are interpreted as evidence of the re-territorialisation of the UK public sector, with accruals accounting and accounting consolidation practices playing a facilitating role.     

How do politicians shape and use budgets to govern public sector organizations? A position-practice approach

This paper examines politicians’ influence on budgets in governing public sector organizations. Theoretical reasoning is based on the position-practice concept applied in structuration theory. Research took place in a hospital district in Finland from 2009 to 2015. The findings show that politicians set coercive budgetary policies, but there was no direct relationship between budgets and actual medical practices. As a result, the budget was simply a ‘ceremonial’ tool of political governance, as medical professionals concentrate on delivering healthcare services.     

Innovation in Governance and Public Services: Past and Present

Three approaches to innovation in the public sector in the post war period are identified and analysed for their implications for policy-makers, managers and citizens. Various relationships are identified between innovation and improvement in public services. The traditional bias of the literature that innovation is necessarily functional is undermined. Important lessons for policy, practice and research include the need to develop an understanding of innovation which is not over-reliant on the private sector manufacturing literature but reflects the distinctive contexts and purposes of the public sector.