Concept and features
Analysing late-1980s British reforms in education, health, housing and social care, Le Grand (1991) described quasi-markets: on the supply side, independent providers compete instead of a state monopoly; on the demand side, users choose through vouchers, earmarked budgets or agents such as health authorities rather than cash. Enthoven (1985) proposed an NHS internal market splitting purchasers from providers, a core New Public Management tool.
Conditions for success
Le Grand and Bartlett (1993) argued that quasi-markets improve efficiency and responsiveness only if there is real competition, users can obtain information about quality, transaction costs are not excessive and 'cream-skimming' of cheaper users is prevented. Le Grand (2007) argued that choice and competition can be 'the other invisible hand'.
Evidence and critiques
Propper et al. (2004) found that 1990s price competition among English hospitals did not raise quality, whereas Gaynor et al. (2013) found that 2000s fixed-price competition on quality improved outcomes, showing that design matters. Critics argue quasi-markets cannot escape market failures such as information asymmetry, may widen inequalities and erode public ethos (Bartlett et al., 1998).
FAQ
- What are quasi-markets in simple terms?
- Government pays, while schools, hospitals or care providers compete to be chosen by users.
- How do they differ from normal markets?
- Users do not pay directly, using vouchers or public budgets instead, and providers need not seek profit.
Sources reviewed: 2026-10-26
References
- Le Grand, J. (1991). Quasi-markets and social policy. The Economic Journal, 101(408), 1256–1267. The article that defined quasi-markets in social policy.
- Le Grand, J., & Bartlett, W. (Eds.). (1993). Quasi-markets and social policy. Macmillan. Sector studies and the conditions for quasi-market success.
- Bartlett, W., Roberts, J. A., & Le Grand, J. (Eds.). (1998). A revolution in social policy: Quasi-market reforms in the 1990s. Policy Press. Evaluates Britain's 1990s quasi-market reforms.
- Le Grand, J. (2007). The other invisible hand: Delivering public services through choice and competition. Princeton University Press. Le Grand's case for choice and competition in public services.
- Enthoven, A. C. (1985). Reflections on the management of the National Health Service. Nuffield Provincial Hospitals Trust. The report proposing an NHS internal market.
- Propper, C., Burgess, S., & Green, K. (2004). Does competition between hospitals improve the quality of care? Hospital death rates and the NHS internal market. Journal of Public Economics, 88(7–8), 1247–1272. Evidence on hospital competition under the 1990s internal market.
- Gaynor, M., Moreno-Serra, R., & Propper, C. (2013). Death by market power: Reform, competition, and patient outcomes in the National Health Service. American Economic Journal: Economic Policy, 5(4), 134–166. Fixed-price competition improved patient outcomes.