Provider Ownership and Indicators of Service Quality: Evidence from Swedish Residential Care Homes

Abstract

The provision of public services by for-profit and non-profit organizations is widespread in OECD countries, but the jury is still out on whether outsourcing has improved service quality. This article seeks to nuance existing debate by bringing to the fore variation in service quality between different types of non-public providers. Building on theories of dimensional publicness and incomplete contracts, we argue that different forms of non-public ownership are associated with varying intensity of incentives for profit maximization, ultimately affecting service quality. Using residential elder care homes in Sweden as our universe of cases, we leverage novel panel data for 2,639 facilities from 2012 to 2019, capturing ownership type of the care home operators, against a set of indicators pertaining to inputs, processes and outcomes. The results suggest that non-public providers with high-powered incentives to make profit, such as those owned by private equity firms and publicly traded companies, perform worse on most of the selected indicators compared to private limited liability companies and nonprofits. Our findings that the intensity of quality-shading incentives is not the same for all non-public providers, have important implications for government contracting and contract management.