Balancing Markets and Government to Enhance Efficiency and Quality in Social Services in Latin America

Co-Principal Investigators:
Ben Ross Schneider, professor of Political Science, Northwestern University (brs@northwestern.edu)
Armando Castelar, Universidade Federal do Rio de Janeiro and Instituto de Pesquisa Econômica Aplicada (IPEA), Brazil
Funder: Tinker Foundation

Policymakers and academics in the United States and Latin America agree that deficiencies in social services like health and education derive from low quality and inefficient delivery, as opposed to inadequate funding. Some reformers advocate the introduction of market and quasi-market competition as a tool for developing greater quality and efficiency. However, the provision of social services is even more complicated than traditional markets, because those who pay for services are not their consumers (students and patients in the cases of education and healthcare).

Policymakers can introduce competition among providers either by making them compete for funding or for consumers, yet both forms of competition generate perverse incentives that require greater monitoring on the part of government in order to ensure that competition generates the greatest benefit. For example, when providers such as schools and hospitals compete for funds, they have strong incentives to reduce costs—but they also have incentives to skimp on quality. Harnessing market reforms in the delivery of social services requires enhanced government capacity to collect, process and act on information regarding performance.

The goal of this project is to devise a general analytic framework that incorporates both economic and political incentives for understanding the conditions under which market mechanisms are likely to generate the greatest improvements in efficiency and quality of social services. This framework will draw on, and elaborate, insights from new institutional economics and institutional analysis in political science, and from comparative empirical research on selected cases of reform in Brazil, Chile and Argentina.