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Public Policy: Using Market-Based Approaches Empowering consumers by enabling them to exercise choice can be a goal in its own right, as in the case of choice-based lettings, which is examined in Part IV below. It may also lead to improvements in customer satisfaction. For example, having and exercising choice over primary care physicians has been associated with higher satisfaction with the care received. 36 Creating a sense of empowerment can also improve measured outcomes by creating incentives for individuals to assume some of the responsibility for outcomes themselves. 37 For example, in the case of education, a parent who has selected a particular school for their child is more likely to remain involved in the rest of the child’s education process than a parent who felt they had no choice at the outset. This in turn is likely to be associated with better student performance. Evidence The impact of user choice on efficiency and standards has been evaluated in a number of studies, particularly in relation to the supply-side effects of introducing competition between education providers. Many of these studies use evidence from experiments with voucher schemes for education introduced in various locations in the US. In these voucher schemes, each parent is given a voucher for the value of a child’s education, which can be given either to a state or to a private school. For example, the Milwaukee (Wisconsin) Parental Choice Program was introduced in 1989 and offered low-income families state support for tuition costs of private schools. Evidence since 1998 shows competition has had positive impacts on state schools. Hoxby (2003) finds that where competition was strongest, state school test scores are 8 percentile points higher in maths and languages and 14 percentile points higher in science relative to areas untouched by competition. The scheme was also designed to reduce inequality. Competition was increased most where there were more children from less well-off backgrounds as more students in these areas qualified for vouchers, and performance improved most where competition was strongest. APPLICATIONS Choice can be exercised in a variety of dimensions, including the quantity consumed, which provider delivers the service, and the type of product consumed. 38 Areas of public service provision into which consumer choice has been introduced include schools, health services and social housing. Educational Choice in the UK Since 1988, parents in England and Wales have been able to send their children to any school of their choosing, capacity constraints permitting. Improvements 36 See Amyx, D., JC Mowen and R Hamm (2000) ‘Patient satisfaction: a matter of choice’, Journal of Services Marketing, 14, 7; Kalda, R., K. Polluste and M. Lember (2003) ‘Patient satisfaction with care is associated with personal choice of physician,’ Health Policy 64(1); Hsu, J., J. Schmittdiel, E Krupat , T Stein, D Thom, B Fireman and J Selby (2003) ‘Patient choice: a randomised controlled trial of provider selection’, Journal of General Internal Medicine, 18(5). 37 See Osborne and Gaebler (1992) Op Cit. 38 Where the good or service concerned can be horizontally differentiated. 52
in outcomes are difficult to distinguish from other education reforms enacted during the period. However, Bradley and Taylor (2002) find evidence to suggest that standards improved more sharply where there was greater competition between schools. They estimate that a 3 per cent improvement in the performance of a secondary school’s competitors at GCSE level is associated with a 1 per cent improvement in the school’s own GCSE results, and find that new admissions are positively related to a school’s own performance and negatively to the exam performance of its competitors. Glennerster (2002) finds evidence that educational inequalities have narrowed under a system of choice, with the worse performing schools experiencing the largest improvements in students meeting target levels. Choice-based lettings The use of consumer choice in the provision of social housing in the UK is described as one of our case studies in Part IV. IMPLEMENTATION ISSUES Economic theory and studies of past experience suggest that the following implementation issues can affect the success of consumer choice schemes: ● capacity constraints; ● inequality of access; ● segregation; ● information; and ● incentives to over-consume. The evidence on these issues which we have examined is set out in Part V. Below we summarise the main conclusions we have drawn from this evidence Capacity constraints Section 7 – Market-Based Mechanisms The introduction of consumer choice is likely to lead to capacity constraints for those providers that are most popular with users. On the supply-side of the market, this problem can lead to the need for some form of rationing between consumers, reintroducing some element of command and control. One rationing mechanism is for the provider to ‘cream skim’ the most desirable consumers. For example, schools may decide to allocate places to the most academically able pupils. This cream skimming can allow the school to improve its apparent performance without increasing its actual performance. To some extent, the effect on apparent performance can be addressed if more sophisticated measures of performance are used (which adjust for differences in pupil intakes, for example). The problem can also be dealt with by specifying the rationing mechanism to be used. 53
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DTI ECONOMICS PAPER NO.14 Public Po
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DTI ECONOMICS PAPER NO.14 Public Po
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Contents Acknowledgements vi Forewo
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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
Page 50 and 51: SECTION 7 Market-Based Mechanisms W
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
Page 85 and 86: A prison failing to deliver on its
Page 87 and 88: Table 9.3 Companies providing priso
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Page 91 and 92: detect any deviation from a collusi
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Page 95 and 96: (e.g. lighting). This impact could
Page 97 and 98: MARKET POWER The full benefits of c
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Page 103 and 104: Controlling for problems of asymmet
Page 105 and 106: Procurement process design One way
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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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Section 9 - Competitive Tendering o
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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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