This article is concerned with assessing the effectiveness of markets for complex professional services in social care. The issue is explored through an account of developments in the children`s residential care sector. Over the past five years there has been a steady expansion in the role of external markets in this area. However, this was not required by the Children Act 1989 and has become the subject of considerable debate between policy makers and practitioners. While some favour an extension of choice, others argue that a further decline in local authority run provision will be both costly and detrimental in terms of meeting key policy goals. In order to assess these claims, reference is made to the findings of a study of purchasing practices for children`s residential care in twelve local authorities in England and Wales. The impact of the emerging market is analysed along two dimensions. Firstly, we assess how far it is operating efficiently, concentrating on market structure, information and transaction costs. Secondly, attention is given to the impact of market changes on the policy objectives of : localized placements; ensuring adequate safeguards; and matching needs and services. The results reveal that there have been significant costs associated with markets in children`s services. In a context of government efforts to promote modes of service delivery on the basis of `what works`these difficulties have certain implications. Not only do they draw attention to the need for greater collaboration between purchasers and providers, they also point to the continued relevance and usefulness of local authority managed provision