Difference of Civicness and Relative Efficiency of the Public and Private Sectors for Public Service Delivery: Self-selection and Sorting

Abstract: The issue of the relative efficiency of the public and private sectors for public service delivery is still open to debate. In this paper, we argue that both sectors are heterogeneous in terms of civicness and that this difference is culturally determined. In a model explaining the relationship between the difference of civicness and the relative efficiency of the public and private sectors, productivity is higher in one sector relative to the other because its expected civicness acts as a self-selection mechanism. If workers have imperfect information about the civicness of workers with whom they match and matches take place within sectors, then high-civic workers will choose to work in the expected -- culturally determined -- high-civic sector. We test this model in two ways. First, using the Swiss language border between French and German areas -- which are characterized by systematic differences in the level of confidence in public administration and private companies -- as a spatial regression discontinuity design, we highlight the causal effect of culture on government contracting choices for their services. We find that French-speaking border municipalities are 50% less likely to contract with the private sector than their German-speaking adjacent municipalities. Technical dimensions are much smaller by comparison. Second, we use panel data on privatization choices in OECD countries over 1994-2011. We find that the (inherited) difference of trust between the public and private sectors has a negative impact on privatization, while this does not work for a range of other measures of trust. We document that this impact is not mediated by ideological but by efficiency considerations.