Quasi-market competition in public service provision: User sorting and cream-skimming

Thorbjørn Sejr Guul*, Ulrik Hvidman, Hans Henrik Sievertsen

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

Quasi-markets that introduce choice and competition between public service providers are intended to improve quality and efficiency. This article demonstrates that quasi-market competition may also affect the distribution of users. First, we develop a simple theoretical framework that distinguishes between user sorting and cream-skimming as mechanisms through which quasi-markets may lead to high-ability users becoming more concentrated among one group of providers and low-ability users among a different group. Second, we empirically examine the impact of a nationwide quasi-market policy that introduced choice and activity-based budgeting into Danish public high schools. We exploit variation in the degree of competition that schools were exposed to, based on the concentration of providers within a geographical area. Using a differences-in-differences design - and register data containing the full population of students over a 9-year period (N = 207,394) - we show that the composition of students became more concentrated in terms of intake grade point average after the reform in high-competition areas relative to low-competition areas. These responses in high-competition regions appear to be driven both by changes in user sorting on the demand side and by cream-skimming behavior among public providers on the supply side.

Original languageEnglish
JournalJournal of Public Administration Research and Theory
Volume31
Issue number4
Pages (from-to)740–755
ISSN1053-1858
DOIs
Publication statusPublished - Oct 2021
Externally publishedYes

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