Huan Song

Background: Elderly care service projects (ECSPs) aim to provide care services with the help of market forces on the supply side to satisfy the huge demand of the elderly. Subsidies play an important role in motivating the investors to invest in the ECSPs immediately. The optimal subsidy scheme should balance the policy costs and the investors’ interests.Methods: Based on the policy background of China, this study applied the real options theory to compare the effects of construction subsidy and operating subsidy on achieving policy goals from the perspective of uncertain actual demand. It introduced numerical examples to identify the optimal subsidy scheme and embedded the data from the Chinese Longitudinal Healthy Longevity Survey (CLHLS) to verify the uncertainty of actual demand.Results: The results showed that in the context of uncertain actual demand, operating subsidy has greater advantages in reducing investment thresholds, saving subsidy costs and increasing spillover values. Moreover, a sound quality supervision system, a differentiated operating subsidy scheme and a sustainable growth market demand environment are conducive to increasing the long-term interests of the government and the investors.Conclusions: The study emphasized the importance of subsidy selection in the context of uncertain actual demand, and provided a practical reference for policy designers in China and other developing countries to choose the optimal subsidy scheme for the ECSPs.

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.

Satisfying the growing care demands of the elderly has become a major policy issue under the trend of rapidly aging of the population, especially in developing countries. Although the market-oriented transformation on the supply side is a sustainable way to cope with the pressing demands of elderly care in the long term, the conflict between private and public interests seriously impedes the transformation process in its early stage. From the perspective of maximizing social welfare, this study took the specific situation of China as an example and applied a Stackelberg game model to explore the optimal transformation policy that can balance such conflict of interests. By comparing the effects of two forms of subsidy in China, the results first theoretically verified the importance of subsidy in stimulating the private supply of elderly care, and then emphasized that the size of the gap between supply and demand is the fulcrum of differentiated subsidy, which determines the optimal policy for the development of the elderly care market (ECM) in each aging region. Additionally, the study showed that in the process of market-oriented transformation, the government’s positive response to the demands and preferences of the public, the establishment of market supervision measures, and the increase in the elderly’s affordability all play important roles in improving social welfare. These findings not only have policy implications for the marketization of elderly care in China, but also provide meaningful references for other developing countries in the word that are experiencing or about to experience elderly care problems.