DP9939 Privatization and Quality: Evidence from Elderly Care in Sweden

Author(s): Mats Bergman, Per Johansson, Sofia Lundberg, Giancarlo Spagnolo
Publication Date: April 2014
Keyword(s): competition, incomplete contracts, limited enforcement, mortality, nursing homes, outsourcing, performance measurement, privatization, procurement, public services, quality
JEL(s): H57, I18, L33
Programme Areas: Public Economics, Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=9939

Non-contractible quality dimensions are at risk of degradation when the provision of public services is privatized. However, privatization may increase quality by fostering performance-improving innovation, particularly if combined with increased competition. We assemble a large data set on elderly care services in Sweden between 1990 and 2009 and estimate how opening to private provision affected mortality rates ? an important and not easily contractible quality dimension ? using a difference-in-difference-in-difference approach. The results indicate that privatization and the associated increase in competition significantly improved non-contractible quality as measured by mortality rates. It also reduced the cost per resident, although left total cost unaffected.