Public Policy: Using Market-Based Approaches - Department for ...

Controlling for information problems
The provision of sufficient information was ensured through the measures
outlined above to limit inequality. In addition, local authorities made information
as easy to access as possible and offered support in analysing information if
requested to reduce the burden of choice on the user.
Performance in practice 134
If insufficient information was available or the burden of choice too great for
rational choices to be made, we would expect to see this reflected in a lack of
searching and bidding behaviour. Available evidence on consumers’ willingness
to bear search costs is positive, with one pilot surveying applicants and finding
that 85 per cent of respondents were looking in the paper every week for adverts.
However, most pilots that examined the issue suggest that whilst many
participants were actively searching for properties, bidding was relatively
infrequent. For example, one pilot analysed bidding behaviour over 15 cycles
and determined that the majority of people bid infrequently. Out of a maximum
of 30 possible bids, it found that only 7 per cent bid more than 20 times and more
than 25 per cent bid only once or twice. Most pilots reported that between 25 and
50 per cent of applicants were bidding at any one time. However, this could have
been a result of lack of suitable properties rather than an unwillingness to bear
the costs of bidding per se.
Outcome of market mechanism
BENEFITS
Section 10 – Choice-Based Letting in Social Housing
Theory suggests that introducing choice could have the effect of increasing
efficiency through both the demand and supply sides of the market. As noted in
Part III, there are three main types of efficiency relevant to our analysis of user
choice, namely allocative, productive and dynamic efficiency. The first of these,
allocative efficiency, refers to a situation in which scarce resources are allocated
to the use that society values higher than all other alternative uses. In other
words, resources are allocated in a way that maximises social welfare. In this
situation, no one member of society can be made better off by re-allocating
resources without making another worse off. Productive efficiency is a precondition
for allocative efficiency, and is achieved when a specific outcome or
level of output is obtained using the most cost-effective method. Dynamic
efficiency refers to the efficient allocation of resources over time.
Introducing user choice can also lead to increases in social welfare, both by
improving efficiency and by empowering users. Reducing the dependency of
users on housing officials can be beneficial in its own rights, and can improve
customer satisfaction by conferring on users a sense of ownership of the
134 All data in this paragraph taken from Marsh et al (2004), Op.Cit., p.136.
135