Tuesday, January 22, 2013

Private Contracting

When a government cannot deliver services to a section of society, it has to contract private citizens to do the job efficiently and equitably. Rural areas, like urban areas, have the right to the delivery of services and the provision of vital goods regardless of distance and incommunicability. Whether in the deep mountains of Alaska or in distant Hawaii or among farming communities sandwiched between rural areas, it is the responsibility of the government to ensure the delivery of services by the public or private companies. The United Sates Postal Services (USPS), despite being a big corporation, still lacks the resources to penetrate some areas that are beyond its reach such as the many rural areas scattered countrywide in almost every state of the U.S. People benefit from the services provided by private companies such as the delivery of postal mail and in return service providers generate revenue that will cover the costs of the services provided and wages for its employees. There are many rival companies that are in competition with USPS.

A monopoly carrier owned by the government, USPS, a postal service that is known for its delivery of first-class mail, remains in stiff competition with private mail carriers (Baseman, 1981). In the science of economics, joint cost implies everyone paying for his or her share of services provided. Because distance is a factor in the delivery of mail, rural service recipients have to pay more than urban dwellers or urban mail recipients (Hervé & Yves, 2002). In cross-subsidization, individual service seekers are responsible for the service demanded and not the irregularity of the cost function. Differences arise in full responsibility theory and partial responsibility theory. In the full responsibility theory, John should pay the same price as Janet despite John living in a far away place. In the partial responsibility theory, John and Janet have to pay the same amount for service provided. To ensure every citizen gets the services provided by the postal services, a portion of revenue collected from urban communities has to be given to the postal services so it can continue providing services to the rural areas.


Gary, F. (1981).Studies in Public regulation. In Baseman, K.C. (Ed.), Open entry and cross-subsidization in regulated markets (pp. 329-370). The MIT Press.

Hervé, M. & Yves, S. (2002). Responsibility and cross-subsidization in cost sharing. Montréal, Québec: Département de sciences économiques, Université de Montréal.

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