Balancing Markets and Hierarchies to Enhance Efficiency and Quality in Social Services in Latin America

Policymakers and academics in the United States and Latin America agree that deficiencies in social services like health and education derive from low quality and inefficient delivery, as opposed to inadequate funding. Some reformers advocate the introduction of market and quasi-market competition as a tool for developing greater quality and efficiency. However, the provision of social services is even more complicated than traditional markets, because those who pay for services are not their consumers (students and patients in the cases of education and healthcare).

Policymakers can introduce competition among providers either by making them compete for funding or for consumers, yet both forms of competition generate perverse incentives that require greater monitoring on the part of government in order to ensure that competition generates the greatest benefit. For example, when providers such as schools and hospitals compete for funds, they have strong incentives to reduce costs—but they also have incentives to skimp on quality. Harnessing market reforms in the delivery of social services requires enhanced government capacity to collect, process and act on information regarding performance.

This project devised a general analytic framework that incorporated both economic and political incentives for understanding the conditions under which market mechanisms are likely to generate the greatest improvements in efficiency and quality of social services. This framework draws on, and elaborates, insights from new institutional economics and institutional analysis in political science, and from comparative empirical research on selected cases of reform in Brazil, Chile, and Argentina.


This project was funded by the Tinker Foundation. It was housed at the Buffett Institute from 2006–08, and at the Massachusetts Institute of Technology (MIT) until 2010.


Co-Principal Investigators:

  • Ben Ross Schneider, political science, Northwestern University (now MIT)
  • Armando Castelar, Universidade Federal do Rio de Janeiro and Instituto de Pesquisa Econômica Aplicada (IPEA), Brazil


Castelar Pinheiro, A., Schneider, B.R. “Markets and Hierarchies in Social Services: Incentives, Institutions, and Politics.” In Guillermo Perry and Ramona Angelescu, eds., Varieties of Governance. Forthcoming, Palgrave.

Schneider, B.R. Hierarchical Capitalism in Latin America: Business, Labor, and the Challenges of Equitable Development. New York: Cambridge University Press, 2013.

Schneider, B.R. “Hierarchical Market Economies and Varieties of Capitalism in Latin America.” Journal of Latin American Studies, 41 (August 2009), pp. 553-75. Reprinted in Business and Government: Critical Perspectives, edited by Graham Wilson and Matthew Maguire. Routledge, 2013.

Bonelli, R., Castelar, A., Schneider, B.R. “Pragmatism and Market Reform in Brazil.” In José Maria Fanelli, ed., Understanding Market Reforms in Latin America. New York: Palgrave Macmillan, 2007.