Saturday, September 28, 2013

Monospony Problems with Court-Appointed Counsel

I've taken a break for a few months from blogging here to finish up some other projects, one of which is an forthcoming in the Iowa Law Review entitled Monopsony Problems with Court-Appointed Counsel (click on the title to access the SSRN page; download is free and feedback is appreciated).  The discussion about monopsony problems would apply to government outsourcing in many contexts; many of the goods and services procured by government entities place the purchaser in a monopsony-buyer position.  Here is the abstract:

Monopsony is the buyer-side counterpart to monopoly, a situation in which a single purchaser or payer dominates a market for goods or services. When a government entity is the dominant or sole payer for a service, a governmental monopsony results; one example is the provision of indigent defense in criminal cases. Monopsony theory would predict all the problems with court-appointed (government-funded) lawyers that we observe today, such as below-market compensation rates, a shortage of defense lawyers, excessive caseloads, poor quality of representation, escalating rates of hasty plea bargains, and so on. More disheartening is that monopsony theory would predict that these effects would be inevitable, regardless of the budget the government allocates for indigent defense. Despite this pessimistic prediction, monopsony theory offers a useful way to analyze various proposals to remedy these problems, and it suggests that certain systems or institutions for providing indigent defense can better mitigate the monopsony effects, at least compared to the alternatives.

- Dru Stevenson 

Thursday, June 20, 2013

Times editorial against privatization of intelligence contractors

The New York Times views the Edward Snowden case as "a useful reminder of the extent to which the government has outsourced intelligence work to the private sector and the risks in doing so."  Apparently there are "literally hundreds of thousands of private-sector intelligence workers, many of whom possess top-secret security clearances."

The editorial's bottom line:
It is highly doubtful, however, that American taxpayers are getting their money’s worth. The basic justification for outsourcing government work is to get a job done better and cheaper. Outsourcing intelligence does not appear to achieve either aim.
Read the entire article here to learn more about why.

Tuesday, May 21, 2013

Designing for Privatization Accountability


My new column is up at Forbes.com.  Here is a sample, but I want to make a slightly different point on this blog
The most frequent argument I hear is that "its wrong to make a profit on public lands." Most recently, I heard this from a manager of a large campground and lakefront day use area who works for a federal agency. I was not normally in my usual diplomatic mood, and I snapped "so you work for free?"

If my company operated that park for the federal agency, a park that nets about $300,000 a year in visitor revenue, my company would probably make $15,000 or $20,000 a year in profit doing so, if all goes well, which it seldom does (this is a very low margin business). I have no idea what that park manager makes in salary and benefits, but I would be surprised if it were less than $55,000 plus benefits, and probably more. Why is his $55,000 "clean" but my $15,000 for the same task "dirty"? Particularly when the increase in his and his staff's salaries and their increases in benefits has left the park financially tottering and on the brink of closure?
Towards the end I discuss a topic that I think is really relevant to privatization design.
This employee capture, by the way, is not unique to parks — most government agencies suffer from it. In fact, it is not even a phenomenon limited to the public sector. Private organizations are similarly subject to employee capture of their various departments. The difference between private and public organizations, though, is their accountability mechanisms. In the private world, organizations run primarily for the comfort of their employees will get out-competed and eventually will die at the hands of more vital competitors (unless they get bailed out by the government, as at GM). In the public world, accountability is mostly via elections, but public agency workers have been able to organize and wield outsize power in these elections. As a result, what should be an accountability mechanism on agencies captured by their employees in fact becomes a reinforcing device.

The problem with privatization is one ends up with an accountability mechanism somewhere in between. A privatization can, ideally, bring market or market-like forces to bear on accountability. But it can also be poorly designed where a stultifying public monopoly is replaced with a private monopoly that is no better or even worse.

This is, I think, the key issue in privatization on which I would love to see more discussion. Most privatization discussion is fairly polarized, and consists of articles primarily either publicizing a success or a failure, depending on the author's point of view. I obviously think privatization can work, or I would not be in the business, but being in the business also presses my nose up against some fairly spectacular privatization failures that it would be disingenuous to ignore.

I won't answer these today, because I do not have all the answers, but my sense is that there are two key academic questions that really have not been answered in a satisfactory manner, because everyone involved seems more focused on dismissing privatization altogether or advocating it without reservation.
  • What are the characteristics of a particular government activity that make it more or less amenable to privatization?  My gut feel is that the ability to have consumer choice and competition are critical to the best successes.  For example, in my parks world, I may have the monopoly in operating a single park but there are many competitive recreation opportunities for consumers such that if I do a bad job, I will lose business (and my "pay" in such arrangements is 100% tied to visitor revenue, so no visitors, no pay).  Another example might be the DMV, where one can authorize many private competitors to perform DMV functions who will compete with each other, as in California.  A more difficult situation might be tax collection, where one could be substituting a private monopoly for a public one, and where mismatch of incentives could hurt the public.
  • What is the best way to structure contracts to retain the benefit of private market incentives?  Private workers are not inherently different in any way than public workers.  What makes private action often more efficient and consumer-focused are incentives.  But if a privatization contract substitutes the same bad incentives the public agency had, can there be any improvement?

Wednesday, March 13, 2013

Five Poisons of Privatization

Paul Buchheit, of Truth-Out.org, has published an interesting piece titled Five Poisons of Privatization. In this article, he discusses the consequences of privatizing sales of public lands, rights to water, education, healthcare, and free speech. The introduction of the article can be found below, but I encourage you to read the entire article:
It gets more maddening every day. Essential human needs are being packaged into products to be bought and sold. The right to food and water, education, health care, public spaces, and unrestricted speech shouldn't be based on who can pay the most, or on who can generate profits with the slickest marketing pitch. The free-market capitalism that drives our economy is a doctrine of individuals pursuing profit. Nothing else matters. An executive for Roche, a healthcare company, said "We are not in the business to save lives, but to make money." With privatization of the common good we risk losing both our heritage and our humanness.

Thursday, February 28, 2013

Puerto Rican San Juan Airport Going Private

Bob Sechler, of the Wall Street Journal, has published an article unveiling Puerto Rico's plan to privatize its airport. The proposed plan is set to privatize San Juan's Luis Muñoz Marín International Airport, and is expected to generate 2.6 billion dollars.

The Federal Aviation Administration (FAA) initially announced an airport privatization program sixteen years ago, but the program has gained little momentum since. Stewart International Airport in Newburgh, N.Y was the only airport to go private under this program. Chicago's Midway Airport considered privatizing in 2009, but was unable to receive proper funding largely due to the financial crisis. Recently, Chicago has decided to reconsider the idea of privatization. One should expect other U.S. airports to keep a close eye on the outcome of Puerto Rico's privatization. Only time will tell if this will spark interest from other American airports to explore privatization.

Wednesday, February 20, 2013

The Human Right(s) to Water and Sanitation: History, Meaning and the Controversy Over Privatization

Author, Sharmila L. Murthy
Sharmilia L. Murthy has an interesting new paper focusing on humans rights to proper drinking water and sanitation. Specifically, she examines the conflicts that can arise when the private sector get involved in the water and sanitation sectors: The paper, The Human Right(s) to Water and Sanitation: History, Meaning and the Controversy Over Privatization can be found here. The abstract for the paper is presented below:
The recognition by the United Nations (UN) General Assembly and the UN Human Rights Council in 2010 of a human right to safe drinking water and sanitation has propelled awareness of the global water and sanitation crisis to new heights, while also raising a host of challenging issues. The framing of water and sanitation as a human right can be understood as a response to global water service trends that have increasingly emphasized economic efficiency, environmental sustainability, and privatization. The history of the International Covenant on Economic, Social and Cultural Rights (ICESCR) sheds light on some of the controversies around the scope and meaning of the human right to water and sanitation, including the politics of privatization. Although international human rights law has historically been neutral with respect to economic models of service provision, human rights principles are relevant as to how to engage the private sector in the provision of basic services. Three key themes that highlight the tensions between human rights and private sector involvement in the water and sanitation sectors are explored: financial sustainability, efficiency, and dispute resolution. Human rights principles are guideposts for regulation, monitoring, and oversight, which are critical elements when the private sector is involved in the delivery of water and sanitation services.



Friday, February 15, 2013

Pennsylvania's Attorney General Rejects Contract for Lottery Privatization

Pennsylvania Attorney General, Kathleen Kane
I have been keeping up with the latest news regarding Pennsylvania's proposed plan to privatize its state's lottery. I previously posted two articles to this blog (found here and here) tracking the most recent developments of the story.

For the past couple of weeks, Pennsylvania's Attorney General, Kathleen Kane has been reviewing the legality of the drafted contract. Governor Tom Corbett had a deal in place with British company, Camelot Global Services, to hand over control of the state's lottery to the private company.

Kathleen Kane announced yesterday that she has rejected the proposal "because the deal usurps the legislature's powers and runs afoul of state gaming regulations." Kane insists that she is striking the deal down simply because it is illegal. She further explains that she did not judge the contract for its potential profitability, only its constitutional legality. When reached for comment, Governor Corbett expressed his disappointment in the decision, and he is currently evaluating his options to appeal the decision. Angela Couloumbis, of the Philadelphia Inquirer, posted an article providing more details on this latest decision.