Prices, contracts and motivations: institutional arrangements in domiciliary care

The social care reforms of the early 1990s have had profound effects on the domiciliary care system. The adoption of markets and the 'enabling' role for local authorities are central features. In contrast to much of the original rhetoric that lay behind these reforms, economic theory emphasises the importance of the institutional arrangements in affecting performance. Given the discretion that local authorities have over the specific form of transactions with providers, questions about contract choices are especially pertinent. This article describes the range of arrangements being used and the different implications of contract choices. In the context of relatively competitive markets and organisations exhibiting a range of business motivations, the evidence supports the hypothesis that for otherwise equivalent providers, prices are significantly affected by contract type. In short, institutional arrangements matter.