The relationship between market capacity and local governments’ choice of voucher model

Abstract

ABSTRACT Local governments mandated with establishing a voucher market can have multiple options for the specific type of voucher model they choose. What determines the local choice of voucher model in such a multi-option scenario? This article focuses on the importance of market capacity and theoretically argues that market capacity is shaped not only by private providers’ production conditions but also by the wider private market attractiveness. Empirically, the relationship between market capacity and local governments’ choice of voucher model is tested in a voucher market for homecare for the elderly. Based on regression analysis, the article finds that higher market capacity, not least in terms of higher market attractiveness, increases the likelihood of choosing a voucher model with competitive tendering compared to a voucher model based on fixed price and quality terms.