Should We Extend the Role of Private Social Expenditure?

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Should We Extend the Role of Private Social Expenditure?

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Mark Pearson (OECD)
John P. Martin () (OECD and IZA Bonn)

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Abstract

Some people make great claims about the advantages to be gained from greater reliance on the private sector for the provision of social protection. Many of the claims for great macroeconomic advantages do not stand up to scrutiny. However, there is some reason hope that private provision might promote microeconomic efficiency and services which are more responsive to consumer preferences than those provided by a single monopoly public sector provider. Drawing on examples from recent OECD country experiences with private health insurance, care for children and the elderly, and private pension provision, three main conclusions can be drawn. First, opening provision to a diversity of providers has often promoted more choice and innovation. Second, however, efficiency gains have often been limited. This is due to a number of inter-related reasons: (a) Individualisation of packages services is expensive. (b) In order to ensure adequate coverage of the population, crosssubsidisation of particular groups of people is often mandated on providers, reducing costcompetition and diversity of choice. (c) Informational asymmetries (how good is this childcare which I cannot personally monitor, or this health care package which I am not technically able to assess?) cannot be overcome without extensive regulation, which has the effect of limiting innovation and competition. (d) The fiscal incentives necessary to stimulate private provision are high, and have welfare costs of their own. Third, and related to this last point, the distributional effects of private provision raise significant social problems. Private financing and provision of social benefits is not a magic wand; waving it in the social protection field will not mean that the economy and voters will be freed from some great deadweight that has been dragging them down. Nevertheless, the private sector can sometimes deliver either slightly cheaper, slightly more varied or slightly more flexible system of social protection.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1544.

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Length: 35 pages
Date of creation: Mar 2005
Date of revision:
Handle: RePEc:iza:izadps:dp1544

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Paper
- Mark Pearson & John P. Martin, 2005. "Should We Extend the Role of Private Social Expenditure?," OECD Social, Employment and Migration Working Papers 23, OECD, Directorate for Employment, Labour and Social Affairs. [Downloadable!]

Find related papers by JEL classification:
H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Boundaries of Public and Private Enterprise; Privatization; Contracting Out

This paper has been announced in the following NEP Reports:

NEP-ALL-2005-04-03 (All new papers)
NEP-PBE-2005-04-03 (Public Economics)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Thai Than Dang & Pablo Antolín & Howard Oxley, 2001. "Fiscal Implications of Ageing: Projections of Age-Related Spending," OECD Economics Department Working Papers 305, OECD, Economics Department. [Downloadable!]
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Other versions:
- Blank, Rebecca M, 2000. "When Can Public Policy Makers Rely on Private Markets? The Effective Provision of Social Services," Economic Journal, Royal Economic Society, vol. 110(462), pages C34-49, March. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Lindbeck, Assar, 2006. "The Welfare State -- Background, Achievements, Problems," Working Paper Series 662, Research Institute of Industrial Economics. [Downloadable!]

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