When can public policy makers rely on private markets? The effective provision of social services

The privatisation of social services is being increasingly discussed. The s ocial services market is characterised by multiple market failures, includi ng informational asymmetries, agency pro blems. externalities, and distribu tional concerns. Consumers may care as much or more about quality of servic es than about price. If quality is readily observable, the government call regulate private providers to assure standards are met. But when standards are difficult to Observe or when the recipient is not the agent who makes t he decisions. government ownership may be preferable. This paper categorise s the market situations in which government provision of social services is likely to be must versus least attractive.