Quasi-Markets and Regulation

Abstract

Prior to the current reforms in health care, education and social care, local government agencies were delegated by central government to act as both purchasers and providers of services. Under the new quasi-market arrangements the functions of service provision and purchase have been split. Designated purchasers now enter into contracts with providers for services to meet the needs of the population for which they are responsible. The services provided, the level of output and the quality of that output are determined by contracts between the purchaser-provider pair. In the development of these markets, there have been calls for greater monitoring of the behaviour of purchasers and providers, and for greater control over the behaviour of certain types of purchaser and provider. In this chapter I examine whether further regulatory action on the part of government would improve the allocation of resources in the markets for education, health and social care. I use the term ‘further’ as even after the introduction of quasi-markets, government regulation of these markets remains high. First, central government sets the budgets of purchasers in all the markets. Second, in some or all of the markets, central government sets the form of the contracts between provider and purchaser, quality standards for entrants, terms of access to capital markets, rates of return on capital and some pricing rules.