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[2] State-Civil Society

At the state-civil society interface, we find private organizations that are non-profit oriented, aimed at the provision of public goods, and (predominantly) funded by governments. We find most public universities, public policy implementation bodies and public hospitals in this category. Many of these organizations face governance challenges related to funding: how to develop business models that allow for ‘cross-subsidization’ between private activities (fees, wealthy patients) and non-profit or loss-making activities.

Agency Challenges

Multiplicity in the responsibility to steer and monitor reduces steering and monitoring overall (increasing free-riding behaviour);
Inequity between principals may induce lobbying by the agent;
Conflict between principals increases the agent’s autonomy: in the absence of clear directives, the agent has more freedom to choose its paths or to play out branches of government against each other;
Problems in building incentive schemes for agents when principals’ objectives diverge and when there is a lack of coordination;
Individual principals have incentives to lobby agents to pursue their individual objectives; multi-principal nature of government can start to revolve more around individual principals’ power and less around cooperation;
Leads to more significant inefficiencies: lobbying increases agency costs and brings a larger wealth transfer from principals to agent than would occur under a single principal; welfare loss that comes from monitoring duplicity when multiple principals do not coordinate.

Typical Strengths

Quicker realization of social goals and the organization of social capital;
Lower marginal costs of public goods, while pursuing social welfare objectives;
Risk-sharing; investment in activities/ projects that the public authority or third sector would be unable or unwilling to complete alone;
Performance-based payment;
Contractual stipulation of risk bearing/ responsibilities/ performance standard;
Access to networked solutions/ techniques/methods and specific target groups;
Leveraging private ﬁnance (voluntary contributions) with public funding.

Typical Weaknesses

Complexity in, and duplication of steering mechanisms and monitoring;
Goal incongruence (different masters to serve);
Ambiguous or unclear performance criteria due to directive ambiguity;
Contracts/performance measures undermine autonomy, reducing short-term control over service delivery;
Confusion among management and employees, blame shifting and lack of real accountability;
Inefficiency due to monitoring duplicity, insufficient monitoring, increased coordination and transaction costs,
Risk transferred from taxpayer to semi-public organization (such as a university or hospital) to bear residual/unforeseen liabilities.