Reducing the quality risk of elderly care services in government procurement from market-oriented private providers through ex ante policy design: lessons from the principal-agent theory analysis

Abstract

Background Government procurement of elderly care services from market-oriented private providers has become an important way to respond to the growing demands of elderly care. However, the government cannot accurately identify the actual quality efforts of these providers, and the government pursues social benefits while the providers pursue economic interests. The existence of asymmetric information and goal divergence increases the quality risk of services. From the perspective of maximizing the government’s net benefits, this study aimed to analyze how to reduce the quality risk through ex ante policy design. Methods On the basis of the principal-agent theory, this study defined the asymmetric information of market-oriented private providers’ efforts on quality as a random variable, and constructed the theoretical model in the case of asymmetric information to compare with the one in the reference case of complete information, in both of which the government is the principal and market-oriented private providers are the agents. And the models also introduced several parameters to describe key factors that affect the contract results, including the physical health of the elderly, the spillover benefits to the government and market-oriented private providers, and the market risks. Results The optimal results of the models in the two cases were obtained respectively, and the validity of the theoretical models was verified in a numerical example. Taking the case of complete information as the basic frame of reference, the difference of the optimal results in both cases showed the extent of negative impacts of asymmetric information, and highlighted the role of ex ante policy design in minimizing asymmetric information and reducing its negative impacts. Some ex ante policies that can improve the supervision of market-oriented private providers and their quality efforts, as well as have positive effects on key factors, were also recommended. Conclusions The government should attach importance to ex ante policy design to reduce the quality risk of elderly care services supplied by market-oriented private providers in government procurement. Our study provides main framework and critical directions for ex ante policy design, which is conducive to the realization of real and sustained quality improvement.

The Impact of Government Subsidies on Private Pension Enterprises: A Decision-Making Model Based on Their CSR Levels

“…The model presented by Song et al [87] only sets the goal of maximizing the economic benefits of private enterprises. In this article, the decision-making process of enterprises providing elderly care includes not only economic benefits but also social benefits, which reflects the CSR level of private enterprises participating in elderly care services.…”

“…In model studies of government subsidy strategies, Song [87] and Kuhn and Nuscheler [28] regarded the government as the decision maker and set the government subsidy as the decision-making variable. The presented study used the government subsidy amount as a parameter, which can more intuitively demonstrate the effectiveness of government subsidies to private pension enterprises and customers.…”

Subsidy policy selection of elderly care service projects under uncertain actual demand: a real options analysis based on China’s experience

“…diversifying the supervision subjects [42] and reducing the information asymmetry between supply and demand [43]. Therefore, appropriate selection and rational design of subsidy schemes are very necessary to realize the industrialization and sustainable development of the ECSPs.…”

“…The inherent profit-seeking motives of private investors make it easy for them to neglect or intentionally reduce the quality of products in the face of commercial interests. Many studies have emphasized the importance of quality supervision of the ECSPs and have explored some practical measures, such as optimizing the ex ante control mechanism [ 41 ], diversifying the supervision subjects [ 42 ] and reducing the information asymmetry between supply and demand [ 43 ]. Therefore, appropriate selection and rational design of subsidy schemes are very necessary to realize the industrialization and sustainable development of the ECSPs.…”

“…Considering that the government can adjust subsidies according to the quality of projects and services, adjustment coefficients of construction subsidy and operating subsidy are respectively assumed: ρ = 0.9, θ = 0.9. By collecting existing numerical examples, the premium cost coefficient can be calculated as μ = 1.2 [ 43 ]. Referring to similar studies, the risk-free interest rate is set as r = 0.1 [ 59 , 60 ].…”