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

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Authors vi Robert Hahn Justin Coombs Ciara Kalmus Carlos Razo Katherine Curry LECG Acknowledgements We are grateful for comments and suggestions from Elaine Bailey, Richard Beaton, Myriam Borgi, Fazleen Ismail, Alina Jardine, Adam Land, Andrea Lee, Sasha Maguire, Christopher Moir, Amy Newland, Siobhan Pointer, Sheetal Radia, Andrew Rees, and Frances Walker. We are also grateful for the cooperation and assistance of the various organisations and companies interviewed during this research: Camden Council, the Department for Environment, Food and Rural Affairs, Harborough District Council, Kirklees Metropolitan Council, the Home Office, the National Offender Management Service, the Office of the Deputy Prime Minister, Premier-Serco, SGS United Kingdom Ltd and Twin Valley Homes. This research was supported by funding from the DTI and the Office of Fair Trading.
Foreword There is increasing interest in how market based approaches can be used to meet public policy goals. Economic theory suggests that more market-based mechanisms can have advantages over more traditional policy designs. This report, commissioned by the DTI and OFT and completed by a team at LECG, examines how competition and market forces can be used to improve the way that public policy is implemented. It develops the evidence, base surrounding the benefits and pitfalls of using competition and market-based approaches and draws out practical lessons that will help policy makers in future policy development. The analysis presented here is relevant to a wide audience. It draws upon economic research and the experiences of officials, from the Home Office, ODPM, DTI and DEFRA and other stakeholders, such as local government officials and representatives of business. I am particularly grateful for the co-operation of all those who contributed their experiences, insights and funding to this study. I am also grateful to the Competition Forum, which provided the motivation for this work and has, since its establishment in 2004, helped bring together Government Departments and the independent Competition Authorities to promote a shared understanding of UK and EU competition issues. This report contains several important messages. Significant benefits can be realised from the use of market mechanisms, even in apparently unpromising policy areas. But the scale of these benefits depends on how the mechanism is implemented. For this reason, it is important that the lessons of this study are used in order to capture these benefits. Vicky Pryce Chief Economic Adviser and Director General, Economics Department of Trade and Industry 1
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Page 5 and 6: Contents Acknowledgements vi Forewo
Page 7: Contents Section 11 Emissions Tradi
Page 12 and 13: SECTION 1 Introduction and summary
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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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Public Policy: Using Market-Based A
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SECTION 8 Framework for assessing m
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Part IV Case Studies 73
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● 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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