Abstract
Meso-level analysis focuses on the characteristics and dynamics of intermediary structures. In the context of economics, meso-analysis studies intermediary layers of economic activity (industries, or sectors of activity) sitting in between the efficient operations of the firm (micro) and those of sovereign nations (macro). These internal economies rely extensively on the private sector and on market forces for their operations, particularly in industrial sectors such as manufacturing, and construction (Andersson 2003). Interest in mesoeconomics is also large for high-profile areas of service provision such as utilities or telecommunications (Laffont and Tirole 1993).
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- 1.
An obvious exception is health care where contracting-out approaches had been widely used prior to the 1990s (Chalkley and Malcomson 1998). Although health care is a social industry, its peculiarities (derived demand, open end services) and distinctness as a very large industry separates it from most other social industries, and much of the discussion in this paper mostly refers to other types of social industries.
- 2.
The theory of X-inefficiency rests on incentive and information deficiencies. The theory has been very popular with management sciences but is viewed with scepticism by mainstream economists (Stigler 1976).
- 3.
- 4.
See (Jensen and Stonecash 2005) for a recent literature review.
- 5.
There would of course be exception for some specific social services not submitted to standard scarcity constraints, i.e. services which do not respond to a need from recipients but from society as a whole. In particular, services of a mandatory nature may not correspond to the equivalent of a demand schedule from their recipients. Retraining structurally unemployed individuals to provide them with new skills may be part of a mutual obligations requirement, and such services mature slowly over the very long-term. Similarly, the training of inmates in corrective detention centers may not correspond to a need from inmates but from society, even though in the long-run the needs of both may be aligned. In these situations, the initial benefits from the first quantities of service may appear small at first and larger later after accumulation of a sufficient quantity of service.
- 6.
A social quasi market operated by a single service provider appears a unrealistic situation. However, although it would simplify the presentation it would eventually make no difference to my argument. Whether a single or a multitude of providers is selected, the competitive process is usually restricted to the tender only. After the tender, providers operate within the limits of their endowments and do not compete with one another (until the next tender). So in theory at least, it does not matter whether the quasi-market is operated by one or many providers.
- 7.
In this model, I interpret outcomes as a measure of the matched response to the community’s demand b(Q) for the service. If the agenda of the government (e.g. curb obesity) differs from that of citizens (enjoy the consumption of salty high-carbohydrate food), then it can be credibly argued that there are two types of mutually exclusive outcomes; outcomes for society (O) and individual outcomes (A i ). I do not consider cases of divergence between public interest and citizens benefits in the model above. It is reasonable to argue that in most of these cases the public interest should override that of citizens when citizens’ behaviour is self-destructive or causes negative externalities. Hence, even if a service consisting of reducing access to junk food reduces citizens’ benefits from consumption, it should be clear that other arguments in their utility function will be improved (e.g. life expectancy, self-esteem etc.).
- 8.
So far we assume the resource constraint is constant and not binding, otherwise an additional unit of service would have implications on the cost of funding.
- 9.
There is by now a large body of studies corroborating the inverse relationship between QoS and cost savings. A recent survey is (Jensen and Stonecash 2005).
- 10.
So far we still abstract from transaction costs issues. Obviously, the problem of setting a pre-defined quality level in contractual print is that asymmetric information issues will generally prevent any consistent and unprejudiced assessment of whether quality is being delivered or not. Total quality management processes such as ISO9000 and others are not designed to address this problem as they are mere auditing tools evaluating the standards upheld in processes not in outcomes.
- 11.
Note that reducing working time would not improve cost effectiveness as such reductions would cancel out in (5).
- 12.
A situation of extreme volatility could be represented by adding a n × n bi- stochastic matrix. Less stochastic (i.e. more deterministic) shapes for matrix A would thus reflect a lesser screening problem.
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Acknowledgements
Some parts of this paper were presented at the 2008 Graduate Certificate in Policy Analysis at Griffith University, Brisbane, and benefited from the comments of several participants. I am grateful to Prof. John Wanna and to John Butcher for awakening my research interest in the economics of social policy. Any errors in the paper are my own and should not be attributed to these persons. An Australian Research Council linkage grant LP0562398 supports this research and is gratefully acknowledged.
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Freyens, B.P. (2011). The Mesoeconomics of Social Industries. In: Mann, S. (eds) Sectors Matter!. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-18126-9_8
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