Quasi–Markets: A Promising Area for Austrian Economic Research

To unleash entrepreneurship and innovation in welfare service provision, many countries have established quasi-markets. We argue that Austrian scholars should bring their analytical focus to such markets, as they could shed light on their workings and offer policy suggestions on how the institutional frameworks governing these markets can be improved. Focusing on the development of the Swedish quasi-markets for schools and nursing homes for the elderly, we demonstrate that competition and the profit motive are necessary yet insufficient conditions for quasi-market innovation. To be truly innovative, quasi-markets require a set of complementary institutions that are knowledge-enhancing in nature, i.e., enable users to make informed choices while incentivizing entrepreneurial providers to compete and innovate along the dimensions that users value.