Abstract
This dissertation consists of four separate papers. Paper 1: Will Privatization Reduce Costs? I develop a model of public sector contracting. In this model, an agent can put effort into increasing the quality of a service or reducing costs. Being residual claimants, private owners have stronger incentives to cut costs than public employees. However, if quality cannot be perfectly measured, providing a private firm with incentives to improve quality forces the owner of the firm to bear risk. As a result, private firms will always be cheaper for low levels of quality but might be more expensive for high levels of quality. Paper 2: When Does Privatization Reduce Costs and Improve Quality? Theory and Evidence from Service Contracting I develop and test a model of service contracting in residential youth care. I find that private facilities have lower per-day cost of treatment for low levels of quality, but higher per-day cost for high levels of quality. Though public facilities generally have a higher level of quality, private facilities are relatively better at treating troublesome teenagers. Treatment periods are much longer under private provision, implying that the average total cost of treatment is twice as high in the private sector. Paper 3: Identity and Redistribution (co-author Robert Östling) This paper models the interaction between individuals' identity choices and redistribution. Both redistributive polices and identity choices are endogenous, and there might be multiple equilibria. The model is applied to ethnicity and social class. Paper 4: Political Polarization and Economic Performance (co-author Robert Östling) We study the effect of political polarization on economic performance using the dispersion of self-reported political preferences as our measure of polarization. We find that politically polarized countries are poorer and have smaller and inferior governments.