Principles and agents in social care: who's on the case and for whom?

The economic theory of principal and agent is examined to assess its suitability for application to the world of social care. Principal and agent theory hinges on the bases of two individuals, the principal, who is ill-informed and the agent, who is informed. The principal hires the agent to act in such a way that the principal’s utility is improved. Information is passed on to the principal from the agent to allow rational allocation of services at a reasonable fee. The imbalance of information, however, causes problems in the relationship. The asymmetry can result in moral hazard or adverse selection when the agent “misuses” the information at his/her disposal. A considerable amount of literature exists in this area relating to the doctor-patient agency relationship. Here the doctor and patient have interdependent utility functions they try to maximise. The problem of supplier induced demand in fee for service systems has been found. This is the problem of doctors unwarrantedly increasing demand to maintain their income or other entities in their utility functions e.g. prestige, a producer’s moral hazard. It is believed that lessons from these situations can be applied to social care. In social care we have an agency relationship between the care manager and their clients. To assess this it is important to draw out the similarities and differences in this relationship. In some respects social care agency relationships are more interesting and challenging than the doctor/patient relationship because of the number of “agency” models available – care managers, advocates and service brokers. In this quest for understanding if such a relationship exists it is important to have information about care management itself to find out what exactly it is trying to do and how it functions. This is helped by taking examples of its operation from Britain and the USA for various client groups. The operation of the service is important to examine as this will allow us to understand how the service is coordinated and how budgets operate. The final section of the paper examines predictions by this application and suggests a research agenda.