In the wake of public service liberalisation in many OECD countries, economic interventions into the purpose and implementation of social policies have gained a lot of interest in recent years. The prime aim of this paper is to describe the nature of these interventions. The paper examines the reasons for pursuing elusive efficiency objectives in the conduct of public policy, rationales for purchaser‐provider splits, evaluation of cost‐quality relationships, service costing and pricing, and the influence of “external” economic variables.
The paper breaks the analysis of public policy down to three layers of economic interventions: macroeconomics (allocative efficiency, intervention rationales and macroeconomic environment), mesoeconomics (economics of delivery in “social industries”) and microeconomics (agent behaviour, contracting, pricing and evaluation). Each level of economic intervention is illustrated with examples, mainly taken from Australian public policy and mainstream social economic research.
Some of the most critical questions in policy implementation (outsourcing, pricing, contracting and agency problems) can be traced back to economic reforms. Experiments with new modes of service delivery are driven by a changing economic context, yet the efficiency gains from these innovative approaches may come at the expense of service quality.
Changing macro‐, meso‐ and microeconomic variables profoundly alter the parameters of service delivery. Designers and managers of service delivery systems need to be aware of – and skilled in – the practical application of economic principles, concepts and methods.
Except for the health sector, there is a lack of consistent research on the interrelationships between the standard economics toolkit and the delivery of public services. Yet the two are profoundly intertwined. The paper helps distinguish these relationships by putting together elements of conceptual analysis and fieldwork.
