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Public Policy: Using Market-Based Approaches ALLOCATION MECHANISM Introducing user choice will not necessarily mean that all users will be able to exercise their first choice on all occasions. Capacity is likely to be limited. For example, it would be inefficient for every school to have the capacity to offer a place to every child in its education authority area. As a result school places are likely to be limited at the most popular schools and not every parent will be able to send their children to these schools. Given these capacity constraints, some mechanism is needed to ration the capacity of popular service providers between competing users. In private-sector markets this role is performed by the price mechanism: those who are willing and able to pay more bid up the price until demand matches available supply. Since allocating places on the basis of willingness to pay may conflict with public policy objectives, it may be necessary to find an alternative allocation mechanism for public services. Users will need to understand that their ability to choose will be constrained by available capacity and they may have to accept something less than their first choice, which may still be preferable to no choice at all. CHOICE-BASED LETTINGS In the case of choice-based lettings a number of different mechanisms have been used to allocate properties between rival potential tenants. Some involve awarding points based on a number of objective factors (such as length of time waiting for a property and whether the person is disabled etc). Others simply rank applicants based on the length of time they have been waiting, but allow certain applicants priority for certain properties. In all cases applicants are awarded some form of ‘currency’, such as points or a position on a waiting list. Properties are then let to the applicant possessing the most currency. A key difference with the traditional administrative system is that all eligible applicants can view the available properties. As the properties are advertised weekly in local media, applicants can choose properties that they prefer, rather than having a choice made for them. It also means that those lower down the waiting list are able to choose the less popular properties, which may be rejected by those at the top of the list, so that unpopular vacant properties can be re-let more quickly. Although capacity is likely to be fixed in the short run, it may be possible to alter it over the long run-by deciding whether or not to close one school and expand capacity at another, for example. User choice will provide information on user preferences that we would expect to be used to influence these decisions. Incorporating information from actual user choices may work best when users have the option of using private-sector providers. Private-sector providers are likely to have more freedom than public sector providers to raise the capital needed to finance an expansion in capacity. So involving private-sector providers may make supply more responsive to user preferences. 26
INFORMATION Users can exercise an informed choice only if they possess sufficient relevant information. A system of user choice therefore requires that the public sector devote resources to communicating information on available choices to potential recipients. Care needs to be taken to provide information that is easily understood and allows for comparisons between providers, without over simplifying complex differences in quality. For example, consider the problem of assessing school quality. Exam league-tables may to some extent reflect the quality of education provided by different schools, but exam results might not be a complete measure of the quality of education provided. Good results may simply reflect a school’s ability to attract bright pupils and users may therefore need guidance on how to interpret and use the information provided. ENSURING EQUALITY OF ACCESS A related issue is that some users will find it easier than others to interpret information and exercise their right to choose. Those less able to exercise their right to choose might include users with less education, those for whom English is a second language and those who find it more difficult to access information because they live in a rural location with poor transport links, for example. Inequalities in the ability to choose may lead to inequality in the allocation of services, with the more advantaged participants receiving better services than those who are less able to exercise their right to choice. The experience of choice-based lettings shows that if these issues are recognised at the outset, then measures can be taken to assist any disadvantaged groups of participants. These measures include providing information in different languages, ensuring that information reaches all potential users and employing staff to provide guidance and advice to users, for example. TRADABLE PERMITS Tradable permit schemes have now been employed in a number of countries, mainly to control pollution emissions. Key implementation issues include: ● allocating permits; Section 3 – Lessons for the design and implementation of specific mechanisms ● differences in environmental impacts; and ● the liquidity of permit markets. 27
Page 1 and 2: DTI ECONOMICS PAPER NO.14 Public Po
Page 3 and 4: DTI ECONOMICS PAPER NO.14 Public Po
Page 5 and 6: Contents Acknowledgements vi Forewo
Page 7 and 8: Contents Section 11 Emissions Tradi
Page 9: Foreword There is increasing intere
Page 12 and 13: SECTION 1 Introduction and summary
Page 14 and 15: Public Policy: Using Market-Based A
Page 22 and 23: SECTION 2 Using market mechanisms U
Page 30 and 31: SECTION 3 Lessons for the design an
Page 40 and 41: SECTION 4 Introduction This part of
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Page 78 and 79: SECTION 8 Framework for assessing m
Page 81 and 82: Part IV Case Studies 73
Page 83 and 84: ● the Green and White papers behi
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A prison failing to deliver on its
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Table 9.3 Companies providing priso
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Section 9 - Competitive Tendering o
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detect any deviation from a collusi
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at HMPS began as an equal mix of th
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(e.g. lighting). This impact could
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MARKET POWER The full benefits of c
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However, it should be noted that te
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on competition is uncertain. The ab
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Controlling for problems of asymmet
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Procurement process design One way
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however, financial deductions are m
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The Independent Monitoring Board at
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Figure 9.1: Difference between the
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‘While there were staff in the pu
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design the invitation to tender and
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and demand conditions. Second, we d
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DEMAND Anyone can apply to a local
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● Rent deposit guarantee by the l
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The Green Paper stated the Governme
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It was not an objective of ODPM or
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DESCRIPTION OF MARKET MECHANISM The
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Once the outcome is determined, fee
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DEVELOPMENTS OVER TIME The major mo
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Concerns about capacity constraints
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from those already located within t
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In several areas, registrations by
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Controlling for information problem
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extent though, it was competition b
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Section 10 - Choice-Based Letting i
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levels are reducing and new tenants
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desired effect of limiting points-c
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efficiency savings in some areas. T
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SECTION 11 Emissions Trading Introd
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Section 11 - Emissions Trading coex
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Section 11 - Emissions Trading emis
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A more detailed and diagrammatic de
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The costs of monitoring and reporti
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INITIAL ALLOCATION OF PROPERTY RIGH
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only 242 in the second year. The di
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COST-EFFICIENT EMISSIONS REDUCTIONS
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consultants to Defra of £11 per to
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Participation has helped us to rais
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Section 11 - Emissions Trading emis
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SECTION 12 Issues in the implementa
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