Contracts and Competition

A significant recent development has been the extension of market processes to activities which were previously provided by the public sector. A central feature of newly privatised markets is the emergence of widespread forms of contracting. Explicit contracting is used where in the past transactions had taken place internally within a public enterprise of a government department. The design of efficient forms of contracting has been an essential component of the development of new markets and quasi-markets such as those in defence and health. This paper examines evidence of the structure of contracts and the extent to which they contribute to or detract from the efficient operation of markets, discusses the role of contracts in some newly emerging markets, and evaluates contracts in utilities where regulation rather than competition policy is widespread.