The discussion over the merits of choice as an instrument to achieve other ends is associated with its use together with competition in the context of quasi-markets (Bartlett & Le Grand 1993; Le Grand 2007). In a competitive market, choice is the driver of both allocative and production efficiency (Dowding & John 2009). Consumers are able to choose from different suppliers and thus signal their preferences in terms of the commodities they wish to buy.
Suppliers faced with competition have the incentive to produce not only what the consumers want (allocative efficiency or responsiveness), but to do so at the lowest possible cost (production efficiency), for otherwise consumers will vote with their feet and choose a different supplier. When choice is curbed by whatever reason, such as when there are monopolies, suppliers are able to increase their profits at the expense of the consumers.
Quasi-markets implemented in long-term care are intended to mimic this process by replacing public monopolies in the delivery of care by multiple providers competing for funding (Le Grand & Bartlett 1993). However, quasi-markets deviate from standard markets in important dimensions (Le Grand & Bartlett 1993; Le Grand 2007). Thus, not all formal providers operating in quasi-markets will be driven by profit-maximization, given that many will be non-profit organisations, which may cast some doubts on their ability to fully respond to market incentives. On the demand side, depending on how the choice is formulated, users’
demand may not be expressed in terms of money but through a voucher or a third party purchaser that makes the decisions on their behalf. Furthermore, price in quasi-markets does not result from the interaction of supply and demand, for the budget of purchasing agencies will be administratively set and prices are most likely strictly regulated. Therefore, prices in quasi-markets do not transmit accurate information about the demand of users and the production conditions of formal providers, and some might not face hard budget constraints (Le Grand & Bartlett 1993).
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The main arguments for choice within quasi-market settings are that it would bring efficiency gains, improve the responsiveness of formal providers to users’ needs and preferences and improve equity (Le Grand 2007). This was contrasted to the previous monopolistic public provision that was deemed to be inefficient in the delivery of care and more worried about satisfying welfare bureaucracies than the users they were supposed to be caring for (Le Grand 1991b). Choice coupled with competition would enhance efficiency, i.e. would produce the highest level of quality at a given cost, and responsiveness through the workings of the market forces as described above. However, unlike standard markets, Le Grand (2007) among others also argues that quasi-markets could potentially deliver a more equitable outcome. Choice would provide less well-off individuals with what Le Grand (2006, p.704) refers to as “sharper elbows” with which to make their claims heard by formal providers. It would also allow for the ability to purchase care to more closely relate to the care needs, since the purchasing power is defined by the voucher or cash benefit and not entirely by the individual’s income.
Thus, in the context of quasi-markets, the instrumental value of choice is only as good as its contribution to increase efficiency, responsiveness of formal providers and equity. It is worth reviewing some of the theoretical considerations regarding choice and each of these aims.
Efficiency
The main mechanism by which choice impacts efficiency is through the possibility that those purchasing care (users or public purchasers acting on their behalf) may exit the relationship with the formal care provider organisation and choose a different one. That is, whoever has agency to choose is allowed and able to decide on the from whom dimension of Table 2.1. This rests on two critical assumptions, however: that there are enough providers to choose from, i.e. enough competition, and that individuals are willing and able to exit, or that at least the threat of doing so is credible enough to induce behavioural changes in providers – i.e. that the market for long-term care is contestable.
The first of these assumptions links the issue of choice with competition and in fact part of the debate around the instrumental value of choice seems difficult to disentangle from the issue of how best to approximate quasi-markets to a competitive market. Following this line of thought, users’ choice is enabled by competition and for this a number of institutional conditions must be in place (Fotaki et al. 2005). There should be: a sufficient number of buyers and sellers so that no one profits from excessive market power; no barriers to entry or exit the market by providers; precise information about the price and quality of care; low
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transaction costs and the participants’ behaviour must be driven by market incentives (Bartlett & Le Grand 1993; Fotaki et al. 2005; Greve 2009). These conditions denote a clear influence from neoclassical and institutional economics and their view of markets as the best mechanisms to produce optimal, i.e. Pareto efficient, outcomes.
The potential sources of market failures in long-term care have already been discussed in the previous section and will not be repeated here. Instead, the focus is on the arguments as to how increasing choice may impact the above conditions for competition and in turn efficiency.
In his 1991 article on quasi-markets, a more sceptical Le Grand (1991a) worried about the added production costs that allowing for greater choice might induce in comparison with monopolistic public provision. His concern was linked with possible rising labour costs, as a previously monopsonic employer is replaced by several formal provider organisations competing to attract workers. Furthermore, quasi-markets demanded the setting up of an infrastructure which allowed for transactions between purchasers and providers to take place and be enforced, most notably for information on quality to be defined and collected or else risk provider capture, which could mean added costs. According to transaction costs economics, efficiency gains are more likely to arise through the use of market mechanisms when contracts are easy to specify and enforce and outcomes easily quantified and observed (Williamson 1975; Williamson 1985) – hardly the case with long-term care. In fact, Le Grand (1991a) also expressed concerns that if assessing quality of outcomes proved complex, then inputs could become the yardstick with which to measure quality and this could put an upward pressure on production costs – causing (inefficient) over-investment to signal quality, akin to an “arms race” (Le Grand & Bartlett 1993).
Le Grand’s concerns were voiced in a context where the purchasing of care services was not to be made by users themselves but through a monopsonic purchaser. Glendinning (2008) and Baxter, Glendinning and Greener (2011) discuss how changing the agency (i.e. who has the power to choose) could impact the instrumental value of choice, namely on efficiency, in the context of reforms introduced in England. Providing users with the power and means to choose would mean replacing the monopsonic buyer with multiple buyers, thus coming closer to the workings of a standard market. Analysing the potential effects on efficiency from an ex-ante position reveals somewhat contradictory insights.
On the one hand, there could be efficiency losses since individual users may lack the bargaining power of single large purchasers. Economies of scale derived from block contracts
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would also probably be lost, as formal providers would now compete to attract individual users (Glendinning 2008). This would also mean a more fluid and unstable environment for formal providers that could hamper their ability to plan and create greater instability for the working force, while also increasing transaction costs associated with gathering information on users’ needs and characteristics and providing them with accessible information to enable choice (Baxter et al. 2011). Finally, taking the cue from research on user behaviour in health care, it is not a foregone conclusion that users of long-term care will act as consumers in a standard market (Greener & Mannion 2009).
On the other hand however, personalised funding and choice by users could increase competition. It could allow for local monopolistic formal providers to be contested by new entrants that would no longer face entry costs associated with negotiating or creating capacity to apply for large block contracts (Baxter et al. 2011). Small formal provider organisations could expand to cover niches and slowly build capacity as they gather users.
Allowing users to pay for informal carers or hire personal assistants could also be seen as further expanding the available pool of possibilities of care provision.
The instrumental value of choice to bring about improvements in efficiency could also come into question if users are not able to exert their power to exit and this could happen for a number of reasons: because of need (Needham 2006), endogenous preferences (Taylor-Gooby 1998; England & Folbre 2003; England 2005) and lack of consumer sovereignty (Eika 2009).
As stated in section 2.1.4, demand for long-term care is a derived demand that arises because of need rather than want. As the need will most likely be permanent, users may have limited possibilities to exit the market of care, unless they opt for informal care – which may not always be available or sufficient to satisfy care needs. These barriers to exit may be even greater in the case of people with specialised care needs (Glendinning 2008).
The feminist scholarship reviewed above has highlighted how carers may develop a bond or sense of attachment with the person they care for, which could preclude them from exiting that relationship (England & Folbre 2003; England 2005) – termed endogenous preferences (Bowles 1998). This could also apply to the person cared for. Consumer choice theory is built on the assumption that consumers decide after weighing all available options without being influenced by the environment or context in which choice takes place (Taylor-Gooby 1998, p.14) – a detached consumer. However, the relational dimension of care may lend itself to the
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establishment of attachments and ties that bind between the carer and the person cared for, thus limiting exit.
There is also the question of potential lack of, or limited consumer sovereignty, as alluded to in section 2.2.3 and exposed by Eika (2009, p.133), i.e. users of long-term care might “have insufficient physical, mental, or social capacities to safeguard their personal interests”. It is worth noting that this does not arise due to asymmetric information as is the case in health care. In the latter case the GP has specialised knowledge about the diagnosis, available medical treatments and their quality and thus has an information edge over the patient.
Instead, for Eika, limited sovereignty suggests being unable to decide the best option even if enough information is available (e.g. due to diminishing cognitive ability) or to monitor or enforce decisions. The example presented is that of users with dementia, which may have their decision-making skills hampered by their condition and lack the credibility to enforce their complaints (Eika 2009; Glendinning 2008). The author recognises that the issue could be partially addressed through representatives (e.g. relatives), but besides the obvious principal-agent issue, this solution could also have implications for the possibility of exit as users may wish to remain geographically close to their representatives.
Finally, the instrumental value of choice to raise efficiency may come under question if the assumptions on which consumer choice is built on do not fit the actual decision-making process of individuals, particularly in long-term care. Quite a wide body of literature has addressed the actual process by which humans make decisions (see for example Fotaki et al.
2005 for a survey of the several theories applied to health care; or Beresford & Sloper 2008 for a survey of psychological theories regarding choice) and authors such as Schwartz (2004) presents several examples of how consumption decisions may depart from what neoclassical economic theory would dub as rational.
Thus, individuals may be much more frugal in the use of available information and resort to mental simplifications or heuristics that speed up the decision-making process and are used as a strategy to deal with Simon’s concept of “bounded rationality” (Kahneman & Tversky 1979). Furthermore, heuristics can be affected by framing – literally how information is presented, or phrased – or by the availability and salience of information (Schwartz 2004, p.56ff). For example, people’s choice of long-term care provider may be more influenced by a single vivid testimony of one user with which they come into contact, than by the information displayed by several quality indicators. In their seminal paper in which they expose their prospect theory under conditions of uncertainty, Kahneman and Tversky (1979) convincingly argue that when making their decisions people weigh the gains and losses in comparison to a
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reference point and not in absolute terms. They believe people are risk averse when deciding upon potential gains and more prone to take on risks when it comes to losses.
As Schwartz (2004, p.70) puts it, however, “The fact is, we all hate to lose”. If people experience a greater dissatisfaction from losing what they have than from potential gains, this coupled with their loyalty towards a known carer could form a powerful barrier to exit in long-term care. Similarly, several examples anchored in psychological research point towards the impact that emotions can have in decision-making. It is not only regret from decisions that can influence choices (see section 2.2.3 above), but also the individual’s emotional state at the time when decisions are made. In this respect, Lerner and Keltner (2000) found that fear can lead people to make over-conservative decisions – a finding that could apply to long-term care where decisions are often made under stress (Baxter & Glendinning 2013)14.
The previous sections have provided reasonable arguments as to how long-term care may be different from other commodities traded in markets (see section 2.1) and why conventional markets may not be able to deliver long-term care in the most equitable or even efficient manner (see in particular sections 2.2.1 and 2.2.2). The literature discussed above further questions the view of users as consumers of care that is central to the functioning of markets.
Responsiveness
While choice and competition may increase production efficiency under specific conditions, it could also improve allocative efficiency, i.e. render formal providers more responsive to the users’ needs and preferences. Again, the mechanism by which responsiveness is enforced is through users exiting their relationship with a provider if unsatisfied about the quality or characteristics of services delivered.
Prices usually provide market signals about the preferences of consumers and thus guide suppliers in providing the variety of commodities that consumers are willing to purchase. As discussed before, prices in quasi-markets may lose some or most of their value as market signals because they may not reflect demand and supply. This is one of the key differences between quasi-markets and standard markets and one that is likely to impact the responsiveness of providers. Prices, but also public budgets (even if provided to users in the
14 This may have implications for the instrumental value of choice as well, since negative emotions in the process of making decisions (e.g. fear) may lead to more conservative choices as discussed in section 2.3.2 above.
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form of cash or vouchers), are likely to be administratively set by public authorities and there might be a gap arising between the market signs thus provided and users’ preferences. An example of this is provided with the German long-term care insurance that provided higher benefits for institutional care use for those with lower care needs, thus signalling and incentivising the take-up of institutional care (Rothgang & Igl 2007).
A key issue in improving responsiveness through choice relates to who is empowered to choose, i.e. who has agency to choose. If purchasers are not the users themselves, then one might question to what extent their choices are aligned with those of users. Similarly, if purchasers act as knaves rather than knights (Le Grand 1997), what incentive should they adopt to defend the users’ interests. Similar doubts over the responsiveness may arise if users are constrained in their choice over the above where, what, when, how and from whom dimensions of care. Baxter, Glendinning and Greener (2011) have argued that personalisation of funding may reduce barriers to entry and thus improve the responsiveness of providers.
Nonetheless, the flipside of choice is that by using their exit option, users may push some providers out of the market which means that the choice of some users could limit the choice of others (e.g. limit the choices of those who had chosen one provider that is forced to leave the market) (Greve 2009).
This leads to the discussion of whether responsiveness may only or best be achieved through choice and exit, or rather through other mechanisms such as Hirschman’s (1970) concepts of
“voice and loyalty”. In the latter case, users express their opinions not by exiting but by voicing their opinions to managers or authorities. Le Grand (2007) concedes that voice has its advantages since it emanates from the users’ needs and wants, providing much richer information than exit - it can also probably better accommodate for the collective nature of public services. In the end, however, Le Grand still opts for choice because he sees voice as not carrying a sufficiently strong incentive to improve efficiency and because those whose voices are heard are probably the most affluent and educated (equity issues).
The matter however is probably best approached by considering the conditions under which choice or voice may be more suitable. Based on the analysis of choice and voice mechanisms in long-term care in four European countries, Egger de Campo (2007) discusses conditions which may hinder the effectiveness of choice or voice. Thus, the power of exit may be limited if simply there are no or limited alternatives to shift to. For instance, this can be caused by regulations that harmonise services, quality standards and prices; or if users attach a greater value to loyalty, for example, maintaining the relationship with the carer; or if barriers to entry are high, as it is the case when there are waiting lists and older people may fear losing
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the little care they receive and get back to the end of the queue. On the other hand, voice may be left unheard in any of the following cases: if users must compete for scarce services (demand exceeds supply) or face monopolies, in which case providers may simply be willing to drop the more vocal users; if users act isolated and thus their complaints are uncoordinated and unknown to other users; and finally, if the costs associated with voice are high, thus rendering this mechanism a privilege of those who can afford the costs – the latter is an argument in line with Le Grand’s reservations on how equitable voice can be.
Equity
Standard markets driven by the cash nexus are often thought of as replicating or magnifying social and economic inequalities and indeed public provision of social services has often been justified on the basis of its ability to “break or even redress the relationship between individual (or household) income and levels of welfare/well-being” (Clarke et al. 2005, p.168). Re-introducing market incentives in the provision of care could thus run the risk of
Standard markets driven by the cash nexus are often thought of as replicating or magnifying social and economic inequalities and indeed public provision of social services has often been justified on the basis of its ability to “break or even redress the relationship between individual (or household) income and levels of welfare/well-being” (Clarke et al. 2005, p.168). Re-introducing market incentives in the provision of care could thus run the risk of