Revitalizing Rural Communities through Institutional Reform of Quasi-Markets

Niklas Elert () and Magnus Henrekson ()
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Niklas Elert: Institute of Retail Economics (HFI), Postal: Regeringsgatan 60, 103 29 Stockholm, Sweden
Magnus Henrekson: Research Institute of Industrial Economics (IFN), Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden, https://www.ifn.se/en/researchers/ifn-researcher/magnus-henrekson/

No 1549, Working Paper Series from Research Institute of Industrial Economics

Abstract: Welfare services such as healthcare, elderly care, and education are key to ensuring quality of life generally, and vital for rural communities across urbanizing countries. While these sectors are largely tax-financed, several countries have established quasi-markets to achieve competition through private entry to unleash entrepreneurship, efficiency, and service provision innovation. The reforms notwithstanding, productivity improvements are modest, and the situation seems particularly bad in some rural communities. We argue that quasi-markets can only live up to expectations if the local institutional framework considers sectoral and local conditions. While competition and the profit motive are necessary conditions for local quasi-market entrepreneurship and innovation, they are not sufficient but require a set of complementary institutions that are epistemic in nature. These epistemic institutions enable users to make informed choices while simultaneously incentivizing entrepreneurs to compete and innovate along the dimensions that users value. Moreover, if the catchment area includes densely populated areas, rural communities may attract users from communities where costs are higher, thus creating new comparative advantages locally. As an illustration, we analyze the Swedish quasi-market for nursing homes for the elderly.

Keywords: Entrepreneurship; Innovation; Innovation policy; Marketized care; Quasi-markets; Welfare services (search for similar items in EconPapers)
JEL-codes: H42 H44 H75 I22 I28 L88 O31 (search for similar items in EconPapers)
Pages: 13 pages
Date: 2026-01-03
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