The public choice literature contains little formal analysis of the bureaucratic choice of production modes -public or private -of publicly funded services. An important question to be addressed is why some governmental bodies choose to provide a publicly funded service with publicly owned and operated production units whereas other governmental bodies contract with private firms to provide the same publicly funded service. This paper is the first formal attempt to remedy this gap in the literature. We develop a theoretical explanation of the government decision maker's choice between public and private production modes based on utility maximizing behavior. We then examine empirically this choice employing logit analysis. The empirical results, which include several tests for robustness, confirm our theoretical explanation. The results are significant and suggest that non-monetary constraints are an important factor affecting this choice of production modes and that monetary constraints are less influential.A large literature has developed over the last two decades comparing the performance of public sector (or more generally, not-for-profit) economic activity with that of the private sector. Industries investigated in this literature include airline service, electric and water utilities, railroads, refuse collection, and school bus transportation. The hypothesis underlying these investigations is that private firms are more efficient by market standards because the rewards and costs of operation reside with the owners of resources involved in production to a greater degree than is the case for

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The effect that specific taxes have on product quality has been a question of interest to economists over the last few years. The problem arises because while goods and services are multidimensional in terms of utility generating characteristics, specific taxes are almost always levied on just one of the characteristics. The effect of quality adjustment on tax revenue has not yet been examined in any detail. Quality adjustment is no doubt a change that occurs over a longer-run time frame. Heretofore, the only attempts at adding a temporal dimension to rate-revenue analysis distinguish between the short run and long run in terms of supply and demand elasticities. In the previous analysis the tax rate at which revenue is maximized and the tax rate at which revenue reaches zero are both lower in the long run. What makes the analysis presented here interesting is that when product quality accounts for the intertemporal distinction, the revenue maximizing tax rate and the tax rate that yields zero revenue are both higher in the long run.