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The cost of imperfect agency in health care: Evidence from rural Cameroun

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  • Leonard, Kenneth L.

Abstract

Health is a pressing problem facing Africans today, yet health care systems in Africa are inadequate and under-funded. We show that pervasive imperfect agency means that they are also inefficient. Imperfect agency (due to unobservable medical effort) is a recognized market failure in health care, but its impact is difficult to measure. We take an indirect approach to estimation and infer the cost of unobservable effort from the behavior of utility-maximizing patients, specifically their willingness to incur measurable costs to avoid practitioners who shirk. We use a unique data set from rural Cameroun where patients choose between the government health system, church-operated (mission) health facilities and, importantly, traditional healers. Traditional healers provide health services on an outcome-contingent basis where patients pay only if they are cured. Both government and mission facilities, in contrast, are paid on a fee-for-service basis. Patients' choices of practitioners, combined with quantitative information about patients' illnesses, permit a structural estimation of the value of unobservable medical effort. The results allow investigation into the nature of agency, its costs, and the manner in which contracts reduce and patient behavior mitigates those costs. We estimate that in the absence of imperfect agency, utility from health care would increase by at least 160%. Even in the face of imperfect agency, the sophistication of patients in choosing between existing contracts for different illnesses increases utility by up to 20%.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 88 (2009)
Issue (Month): 2 (March)
Pages: 282-291

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Handle: RePEc:eee:deveco:v:88:y:2009:i:2:p:282-291

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Web page: http://www.elsevier.com/locate/devec

Related research

Keywords: Imperfect agency Health care Africa Asymmetric information Medical effort Shirking;

References

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  1. Magnus Lindelow & Pieter Serneels & Teigist Lemma, 2005. "The Performance of Health Workers in Ethiopia Results from Qualitative Research," CSAE Working Paper Series 2005-06, Centre for the Study of African Economies, University of Oxford.
  2. Eswaran, Mukesh & Kotwal, Ashok, 1985. "A Theory of Contractual Structure in Agriculture," American Economic Review, American Economic Association, vol. 75(3), pages 352-67, June.
  3. Kenneth L. Leonard & Joshua Graff Zivin, 2005. "Outcome versus service based payments in health care: lessons from African traditional healers," Health Economics, John Wiley & Sons, Ltd., vol. 14(6), pages 575-593.
  4. Paul Collier & Stefan Dercon & John Mackinnon, 2002. "Density versus quality in health care provision: Using household data to make budgetary choices in Ethiopia," CSAE Working Paper Series 2002-17, Centre for the Study of African Economies, University of Oxford.
  5. Leonard, Kenneth L, 2007. "Learning in Health Care: Evidence of Learning about Clinician Quality in Tanzania," Economic Development and Cultural Change, University of Chicago Press, vol. 55(3), pages 531-55, April.
  6. Leonard, Kenneth & Masatu, Melkiory C., 2006. "Outpatient process quality evaluation and the Hawthorne Effect," Social Science & Medicine, Elsevier, vol. 63(9), pages 2330-2340, November.
  7. Das, Jishnu & Hammer, Jeffrey, 2004. "Which doctor? Combining vignettes and item response to measure doctor quality," Policy Research Working Paper Series 3301, The World Bank.
  8. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
  9. Leonard, K.L., 2000. "African Traditional Healers and Outcome-Contingent Contracts in Health Care," Discussion Papers 2000_03, Columbia University, Department of Economics.
  10. Mooney, Gavin & Ryan, Mandy, 1993. "Agency in health care: Getting beyond first principles," Journal of Health Economics, Elsevier, vol. 12(2), pages 125-135, July.
  11. Leonard, Kenneth L. & Masatu, Melkiory C., 2005. "The use of direct clinician observation and vignettes for health services quality evaluation in developing countries," Social Science & Medicine, Elsevier, vol. 61(9), pages 1944-1951, November.
  12. Das, Jishnu & Hammer, Jeffrey, 2007. "Money for nothing: The dire straits of medical practice in Delhi, India," Journal of Development Economics, Elsevier, vol. 83(1), pages 1-36, May.
  13. Filmer, Deon & Hammer, Jeffrey S & Pritchett, Lant H, 2000. "Weak Links in the Chain: A Diagnosis of Health Policy in Poor Countries," World Bank Research Observer, World Bank Group, vol. 15(2), pages 199-224, August.
  14. Mwabu, Germano M., 1986. "Health care decisions at the household level: Results of a rural health survey in Kenya," Social Science & Medicine, Elsevier, vol. 22(3), pages 315-319, January.
  15. Leonard, Kenneth L., 2002. "When both states and markets fail: asymmetric information and the role of NGOs in African health care," International Review of Law and Economics, Elsevier, vol. 22(1), pages 61-80, July.
  16. Kenneth L. Leonard & Melkiory C. Masatu & Alexandre Vialou, 2007. "Getting Doctors to Do Their Best: The Roles of Ability and Motivation in Health Care Quality," Journal of Human Resources, University of Wisconsin Press, vol. 42(3).
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Citations

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Cited by:
  1. Jessica Cohen & Pascaline Dupas & Simone G. Schaner, 2012. "Price Subsidies, Diagnostic Tests, and Targeting of Malaria Treatment: Evidence from a Randomized Controlled Trial," NBER Working Papers 17943, National Bureau of Economic Research, Inc.
  2. Leonard, David K. & Bloom, Gerald & Hanson, Kara & O’Farrell, Juan & Spicer, Neil, 2013. "Institutional Solutions to the Asymmetric Information Problem in Health and Development Services for the Poor," World Development, Elsevier, vol. 48(C), pages 71-87.

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