Il contratto di servizio. Asimmetria informativa e incentivi nel rapporto tra il Comune e l'impresa di servizi pubblici locali"

This paper raises a neglected point in the literature on local public services, showing that even “formal privatisation” (the transformation of the service provider into a joint-stock company) has a significant influence on the agents involved. The relationship between local government and the firm is examined in different scenarios using the formal tools of contract theory. The article shows how the service contract introduced after formal privatisation changes the incentives and the productive efficiency of the firm. This contract is a flexible instrument which permits optimal tradeoffs between conflicting objectives: the local government’s interest in maximising revenues and the quality of local services in the short run and the profit maximisation objective of the more independent and market oriented firm. The paper also provides a historical and normative overview of the evolution of local public utilities, which offers empirical support for the theoretical results.