Revitalizing rural communities through institutional reform of quasi-markets

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. • Well-designed quasi-markets can enhance entrepreneurship, efficiency, and innovation in welfare services like elderly care, particularly in rural areas • Success depends on complementary epistemic institutions that enable informed user choice, accountability, and continuous learning • Despite reforms, Sweden’s elderly care quasi-markets remain limited in innovation—especially in rural municipalities, where most still rely on rigid public procurement models and face barriers to private entry • Expand user choice, broaden geographic market scope, allow “topping-up” for service differentiation, and create robust reputation and feedback systems • T hese reforms could foster local entrepreneurship, job creation, and social trust—turning public service provision into a driver of rural regeneration rather than decline