Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1489: Incentivizing Innovative Entrepreneurship in Quasi-Markets: Theory and Evidence from Sweden’s Schools and Nursing Homes

Niklas Elert () and Magnus Henrekson ()
Additional contact information
Niklas Elert: Institute of Retail Economics (HFI)
Magnus Henrekson: Research Institute of Industrial Economics (IFN), Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden

Abstract: Many countries have implemented quasi-markets to enhance entrepreneurship and innovation in welfare service provision. However, the benefits have generally been limited; this can also be observed in Sweden, a country which stands out for its extensive use of quasi-markets. Based on the Swedish experience, we contend that quasi-markets can unlock their innovation potential only under a suitable institutional framework. By analyzing the development of quasi-markets in schools and eldercare nursing homes, we demonstrate that competition and profit incentives, though crucial, are insufficient catalysts for innovation in quasi-market contexts. Such markets demand a set of supporting institutions of an epistemic nature. These institutions should enable users to make knowledgeable choices and motivate entrepreneurial providers to compete and innovate in ways that align with user preferences.

Keywords: Entrepreneurship; Innovation; Innovation Policy; Marketized care; Merit goods; Quasi-markets; Welfare services

JEL-codes: H42; H44; H75; I22; I28; L88; O31

Language: English

30 pages, May 6, 2024

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