The organisation of social care in England: markets, hierarchies and contract choices in residential care for older people

Abstract

This thesis is concerned with strategic (economic) organisation, as applied to the long-term care system in England. This work adopts a transaction cost perspective. The main hypotheses are: first, that the transaction costs generated by (public sector) hierarchies in social care are lower than those generated in quasi-markets. Second, that production costs in hierarchies are greater than in markets. Third, that contingent contract use is associated with comparatively higher prices and mark-up rates, and greater net transaction costs. The motivation for this work is first to address perceived limitations of the theory in a comparative public sector application. Second, to inform the empirical and policy debate on social care reform. Following an account of the historical policy and institutional context, a multi-period, comparative theoretical model was developed, building on the contract theory literature. It underpins a systematic empirical analysis of care home services - at local authority and care home level - for older people in 1998 and 1999. Various estimation techniques addressed the skewed nature of the data and the panel design. The estimation results supported the theoretical hypotheses. Point estimates of marginal and average transaction costs were £6 and £21 per place per week respectively for hierarchies and £41 and £56 for placements under the market governance archetype, statistically significant differences. For production costs, a significant difference was found in the other direction: £89 for hierarchy and £55 for markets at the margin. Overall, the total (production + transaction) costs were not significantly different. Contingent contract use was associated with higher prices relative to average variable costs of 8% of average price compared with non-contingent contracts. The analysis pointed to low profitability rates and that providers are not solely motivated by profit (only taking 55% of potential profit). Policy implications were explored for both the markets-hierarchies and contracts analyses