To Make or to Buy Long-term Care? Part I: Learning from Theory

The past decades have witnessed an increase in the use of market mechanisms such as user choice and competition for the delivery of long-term care services. This policy change has been accompanied by a fierce debate regarding the merits of making or buying long-term care where those pro and against the market have often used arguments borrowed from economic theory. This Policy Brief reviews some of the theoretical insights offered by economic theory (e.g. transaction costs) and other fields of social sciences (e.g. psychology, disability rights) regarding the make or buy decision as applied to long-term care. The theories reviewed here provide useful guidelines to policy-makers about how best to use market mechanisms to deliver long-term care, but also on the limits of the use of markets in the context of care for older people. While the decision whether to make or buy long-term care is arguably best answered empirically, considering insights from different strands of theory could help prevent adverse outcomes when setting up care markets. 

This Policy Brief is a first part of a trilogy dedicated to the reliance on markets for the delivery of long-term care. The second part will review the implementation of market mechanisms in European countries and the third will address mechanisms to assess and manage quality. This trilogy is based on research funded by the Swedish Ministry of Health and Social Affairs.