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QUASI MARKETS
÷ Quasi Market reform was introduced by the
conservative Government in the late 80·s across a
broad range of public sector industries:
j Social Care
j Education
j Health
÷ It was introduced to encourage efficiency gains within
these sectors, whilst stopping short of complete
privatisation.
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÷ In addition the m+
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'!#&: a voucher system was implicitly introduced
in education and Health Care, for example.
QUASI MARKETS
÷ Differences from conventional markets:
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÷ Providers not necessarily out to maximise profits, as in a
private market, nor are they necessarily privately owned.
÷ Ownership structure and goals are therefore loosely
defined.
÷ Prices will not accurately convey MC, but accounting cost.

÷ Information problems: Moral hazard and Adverse Selection

are Prevalent.
÷ State can provide unspecified contracts to deal with
uncertainty ² Private sector can·t.
j ,!&&:
÷ Consumer purchasing power not in direct currency but in
an earmarked budget or ¶voucher· (which cannot be topped
up).
÷ Decision may not be made directly by the consumer, but
instead by a third party acting on his/her behalf ² i.e., GPs
in Health Care.
QUASI MARKETS
÷ Reasons For Quasi Markets:
j Decentralisation of budgeting and decision making allows for 
.-!'- to allow for adjustment to local needs.
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j Because of unresponsiveness of the previous system, it was deemed to be
m /m as well as INEFFICIENT.
÷ However:
j Because of no profit motive, è(! ! --)  !.
j The entire reason for initially having a welfare state must be kept in mind:
')! 0. Control must be exerted to prevent
these market failures from reoccurring in a Quasi-Market system.
j There may be )1&)! :
÷ Êarge set up costs
÷ Advertising costs
÷ Êow bargaining power against trade unions Rise in Wages.
÷ Due to difficulty of measuring QUAÊITY OF OUTPUT, focus may be given to
QUAÊITY OF INPUTS Rise in costs without discernable improvement of output
quality.
j   ! -#!-')&- 0 
)!.
j Due to being faced with a hard budget constraint½'-)
2 0·. This could be remedied via a positively discriminatory
voucher, but there are problems with that, noted in the extension to the
slides.
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QUASI MARKETS IN EDUCATION
÷ Established with the ð

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÷ The act proposed the following measures:
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÷ Decentralised budgets and provision of a set of common services paid for
by the Êocal Education Authority by taking ~ 15% of the budget.
j !  
÷ Ensuring a MINIMUM STANDARD

÷ However, four reasons how it falls short of a full market

system:
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QUASI MARKETS IN EDUCATION
÷ !&!#:
j Pre-formula funding, budgets allocated administratively,
with a high degree of inertia. This, however, &&1
#'- !!))4 '*
j Formula Funding based on the concept that 
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5  . It can be viewed as a fixed voucher
system (similar to Jencks·).
j +1½'.&!!&
& !-)!&!#² although discretionary
spending is being reduced½!ð 4 ð½!-1
))!- !&678of the total budget.
j Pupil/Teacher ratio rose under the conservative
Government, but because of a spending freeze.
j Possibility of 1#'!#'!&!# to take
into account those children with special needs that require
more resources.
÷ HOWEVER, &''1!! !!&!#
'!-!) !& !!!.
QUASI MARKETS IN EDUCATION
÷ 
÷ Pros:
j  ' ! - !&½& !#è3
! ! -*
j ÊMS provides a mechanism for the optimal provision of
services determined by localised needs ! 
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½!&'-
'&) '&
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j  #!!#1# for head teachers and support
staff
÷ Cons:
j #!''1'#' ! !!
0&1') !&! !means that some
schools will draw from the set of common services
disproportionately (could be remedied via a PDV, however,
remember previous discussion).
j  #!!#1#1&&))!-
!'! ', and will weaken bargaining
power against monopoly trade unions.
÷ In sum, the case for ÊMS holds up well under economic
scrutiny.
QUASI MARKETS IN EDUCATION
÷
)!m!!:
÷ Pre ² 1988, ÊEA largely determined who went where.
÷ 1½ ' '' !#½11' ''-
&'))!9!.
÷ ' !#½'m1!) .
÷ Thus, rationing still occurs in the system, especially with
the more popular schools.
÷ Technically, catchment areas no longer exist ² the ÊEA will
provide a means of transport to whatever school the pupil
has chosen.
÷ However, in rationing, criteria such as an ¶Area of Prime
Responsibility· are still pervasive.
÷ It has lead to changes in admissions patterns; suggesting
that parents are indeed exercising choice.
j However, there !!)² unequal power
in the case that some parents are better able to understand
league tables than others.
QUASI MARKETS IN EDUCATION
÷ 1'.!&!#'0)! ):
÷ Information Problems:
j #!&:& 0#!&-(the largest
influence on educational attainment), nor is such information abundant.
j However, studies by # . show that schools with mixed ability
intakes !&&!!&&&, although not absolute,
basis.
j m& !!2m.)! ;&*Thus, there are '#'

 &1' !)!. This may lead to parents
proving recalcitrant to moving their child elsewhere, 0!#0
#!1'!*
÷ Cream Skimming:
j A fully private market would lead to a high degree of selectivity due to the
problem of & !
j Those children with the highest needs would require more resources ² and,
as we·ve seen, a PDV would not be able to sufficiently increase the
incentive for high achieving schools to consider such applicants.
j This is not optimal, as stated above, since mixed ability schools tend to do
better.
÷ Externalities:
j In addition, there are externalities from mixed ability schools 3 '-
&)-  '!!& '  
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QUASI MARKETS IN THE NHS
÷ Quasi market reform came into effect with the 50!#
 ! ð
.
j '!#&; !+
 (making them
FUNDHOÊDERS), increasing the power of GPs, increasing
pressures on hospitals to become more efficient.
j  ' (GPs) and & (Hospitals) were
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j Well Managed Hospitals could become ;!!#
*
÷ ))-&m :
j !&  )!between hospitals (and hopefully see
efficiency gains).
÷ ,!&&m 
j Consumers do not spend cash, but an 0&&#
&#!' !! (voucher system).
÷ ! ' 
j 1'# ' to an extent via choosing GP
and Hospital.
QUASI MARKETS IN THE NHS
÷ +1 )!<
j There is still excess demand, due to the existence of
waiting lists.
j Competition stymied by geographical considerations.
j Competition ONÊY benefits the well informed and BOTH
the GP and Patient can be accused of being ill ² informed.
÷ !#'&  
j Of the common problems in evaluation techniques.
j The reforms were coupled with a spending boost, so
causality is difficult to establish.
j Self ² selection Those hospitals that were performing
better automatically took up the reforms.
j According to Êe Grand (2002), attempts to give Hospitals
more freedom has been marginally positive.
QUASI MARKETS AND THE NHS
÷ ð $
÷ Decentralisation was reneged on, before coming back in 2002.
÷ ; !&'& 1 &) - 
This allows for economies of scale, but reduces the sensitivity
that Fundholders allowed.
÷ Quantitative targets on waiting lists etc., were introduced in
hospitals.
j #!''!'
)!!! (patient satisfaction).
j Also lead to )! !to treat non-urgent people who had
been on the waiting list a long time rather than treat urgent and new
admitals.
÷ 5! )!==was commissioned to address these
problems and that of declining Hospital productivity.
j It stressed the need for:
÷  
, >m$mè/mWorkforce.
÷ Effective use of  '!#-*
÷ )&! !to encourage allocative efficiencies.
j Êead back to the Quasi Market being reintroduced and &!&
'#! &'' $&!.
j Also lead to a rise in +.)!& !.