Chapter 4: Alternative Arrangements for Providing Goods and Services

Savas argues that there are three parties to service provision: 1) the consumer who directly receives the service, 2) the producer who directly provides the service to the consumer, and 3) the arranger or provider who selects the producer and assigns producers to consumers. These three parties should be thought of as roles played by different agents depending on the service provided. The consumer can be an individual, a household, or a business. The producer role can be played by the government, a private firm (either for profit or nonprofit), or by the consumer herself. The arranger role is, in the case of public goods, played by a government agency. In the case of goods from which people can be excluded and thus money charged, the arranger is often the consumer herself. Savas outlines ten ways in which goods and services are provided, identifying which party plays each role.

• Government Arranges

  • Government produces
    1. Government service - The government provides the service directly to the consumer, acting both as an arranger and a producer. The consumer pays for the service either indirectly through taxes or directly with a user fee.
    2. Intergovernmental agreement - The government, acting as an arranger, contracts with another government to provide a service. This strategy is frequently employed by small communities. Services commonly provided in this way are schools, road maintenance, libraries, recreation facilities, and fire-protection.
  • Private sector produces
    3. Contract - The government selects, authorizes, and pays a private firm to provide a service. Tangible goods such as public works, public safety, and support functions are most commonly contracted to for profit private firms, whereas health and human services and parks and recreation are commonly contracted to nonprofit firms.
    4. Franchise - Government awards monopoly privileges to a private firm to supply a service, usually with regulated prices. Utilities such as electricity, telephone service and heating gas are often supplied in this way by private firms with rates either determined or carefully regulated by government.
    5. Grant - This is one strategy used to provide goods whose consumption is to be encouraged, such as housing, education, and health care. In this case, the government and consumer act as co-arrangers, and usually both the government and the consumer make payments to the producer. For example, a non-profit organization providing affordable housing may receive some operating and development funds from local, state, or national government agencies, but will also collect rents from residents.
    All situations where the government arranges and the private sector produces assume that government has the capacity to select contractors and monitor contractors.

• Private Sector Arranges

  • Private sector produces
    6. Voucher - This is another strategy used to provide goods whose consumption is to be encouraged. In this case, the government subsidizes the consumer rather than the producer, and the consumer is the arranger. The consumer is not limited to firms subsidized by the government. Food stamps are an example of a voucher system. Food stamps are given directly to the consumer and can be used to purchase almost any type of food in most grocery stores.
    7. Market - The consumer arranges service and pays the producer. The government is not involved other than in a regulatory mode. This is the dominant arrangement in the US for many types of goods and services ranging from haircuts to stereo equipment.
    8. Voluntary - A voluntary association either acts as arranger and producer, providing a service directly to consumers (such as a church which operates a shelter for the homeless) or acts as an arranger by contracting with a private firm to provide a service (such as a non-profit organization contracting with a hotel to provide temporary shelter for the homeless).
    9. Self-service - The consumer provides services directly to him or herself such as taking his/her own garbage to the landfill.
  • Government Produces
    10. Government vending - In this case, the private sector arranges to purchase a good or service from a government agency. Examples include purchase of water, mineral, or logging rights to government-owned land, or hire of government agents for a private purpose such as hiring police services for a private event.

There are also hybrid combinations of these ten fundamental types of goods and services provision. For example, government may give a grant to a day care provider to provide service to low income families, and give day care vouchers to low income parents.