Public Service Markets: Their Economics, Institutional Oversight and Regulation

13 Pages Posted: 10 Nov 2015

See all articles by Xeni Dassiou

Xeni Dassiou

City University London - Department of Economics

Peter Langham

City University London

Charles Nancarrow

City University London

Alex Scharaschkin

AQA Education; City University London

Dan Ward

Government of the United Kingdom - NHS Monitor

Date Written: November 2015

Abstract

Public services in the United Kingdom have been transformed over the past 25 years with the introduction of market-oriented solutions into their provision. This has been characterized by a shift away from state provision to independent providers, and by the introduction of competition and choice. This shift was partly ideologically motivated and partly driven by budget-cutting considerations following the global financial crisis. As such, it has been lacking a comprehensive economic justification or method of analysis. It is now commonly accepted that the language of economic markets is essential to frame arguments about how effectively public services are achieving their intended outcomes. Using market language and concepts may not always be comfortable for those from a traditional policymaking background. It can nevertheless be very useful when designing investigations into the effectiveness and value for money in the mechanisms of delivery of such services, whenever these services entail a degree of user choice as is currently the case in large parts of health care, social care and education (referred to as competition in the market). This article aims to provide a conceptual basis on the way of thinking in these terms. We provide a description of the current state and then comment on the desirability of this quasi-market approach. Uniquely in the literature, we analyse the expected and desired developments by distinguishing between choice and compulsory merit goods. In choice merit goods markets many users are unable to choose effectively because of the existence of a number of demand-side or supply-side market failures. Moreover, conflicts may exist between how service users actually make choices, and policy objectives such as universality or equity, which may not be achieved simply by “leaving it to the market”. The users of compulsory merit goods are typically a minority and unable to internalize the full social benefits of their actions; hence, it may be welfare-enhancing for society to coerce them to “consume” these services. As choice cannot be an objective, the commissioning (competition for the market) or direct provision by the state of such goods may meet public policy objectives more effectively than the market mechanism alone. Building on these foundations, this article discusses when public service markets (PSMs) are likely to be an effective method of achieving public policy objectives, and when they may not be. We analyse the implications for the institutional and legal framework, funding oversight and regulation of PSMs as a result of their transformation into quasi-markets. We conclude with some suggestions for those charged with overseeing PSMs in practice based on this analysis.

Suggested Citation

Dassiou, Xeni and Langham, Peter and Nancarrow, Charles and Scharaschkin, Alex and Ward, Dan, Public Service Markets: Their Economics, Institutional Oversight and Regulation (November 2015). Palgrave Communications, Vol. 1, 2015, Available at SSRN: https://ssrn.com/abstract=2688538 or http://dx.doi.org/10.1057/palcomms.2015.35

Xeni Dassiou (Contact Author)

City University London - Department of Economics ( email )

Northampton Square
London, EC1V 0HB
United Kingdom
020 7477 0206 (Phone)
020 7477 8580 (Fax)

Peter Langham

City University London ( email )

Charles Nancarrow

City University London ( email )

Northampton Square
London, EC1V OHB
United Kingdom

Alex Scharaschkin

AQA Education ( email )

Stag Hill House
Guildford
Surrey, GU2 7XJ
United Kingdom

City University London ( email )

Northampton Square
London, EC1V OHB
United Kingdom

Dan Ward

Government of the United Kingdom - NHS Monitor

Wellington House
133-155 Waterloo Road
London, SE1 8UG
United Kingdom

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
42
Abstract Views
620
PlumX Metrics