SITE Working Paper Series,
Stockholm School of Economics, Stockholm Institute of Transition Economics

Abstract: Many quality dimensions are hard to contract upon and are at risk of degradation when services are procured rather than produced in-house. However, procurement may foster performance-improving innovation. We assemble a large data set on elderly care services in Sweden between 1990 and 2009, including survival rates - our measure of non-contractible quality - and subjectively perceived quality of service. We estimate how procurement from private providers affects these measures using a difference-in-difference approach. The results indicate that procurement significantly increases non-contractible quality as measured by survival rate, reduces the cost per resident but does not affect subjectively perceived quality.

Keywords: elderly care; incomplete contracts; limited enforcement; mortality; non-contractible quality; outsourcing; nursing homes; performance measurement; perceived quality; privatization; procurement.

JEL-codes: H57; I18; L33

52 pages, November 9, 2012

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