Applying the decision rights to a case of hospital institutional design
Corporatization, a hybrid between public sector ownership and privatization, is an organizational form that is increasingly being adopted in the social sectors. In the health sector, the high costs of public hospitals, new technological developments, changes in demand for primary and secondary health care, and efficiency considerations have necessitated shifts in organizational boundaries, leading to conversions in hospital ownership. In the past decade hospitals have been converted from public to nonprofit and from nonprofit to for-profit in industrial and developing countries alike. The debate around these conversions has centered mostly on the tradeoff between equity and efficiency involved in the shift from public to private provision of services. Eid argues that more important than this dichotomy is creating appropriate incentives and matching incentives with goals through institutional design. Because corporatization combines elements of both private and public ownership, it is difficult to design. Among the challenges is deciding where on the spectrum from a budgetary unit to a privatized enterprise a hospital should lie. Another challenge is aligning incentives-not just within the hospital but also between the hospital and the ministry of health. Eid draws on the decision rights approach to analyze how an innovative hospital in Lebanon, H?ital Dahr El-Bachek (HDB), corporatized itself and became the best in the public sector over a period of seven years. To study HDB's experience, she develops a decision rights analysis framework that tracks the formation, evolution, and dilution of decision rights. She finds that: There are important lessons from bottom-up, demand-driven institutional design that can inform the design of top-down, supply-driven institutions, such as laws and regulations. An understanding of mechanisms of risk sharing and high-powered incentives created from the bottom up can inform the design of corporatized organizations. Key to good design are decision rights complementarities that provide the most complete (and flexible) contract possible, regardless of where ownership lies. In designing systemwide institutions for corporatization, Eid argues, risk transfer is important in satisfying the two most important objectives of the reform. The first objective is establishing hard budget constraints to control sectoral costs. At HDB, the decision right to raise revenue through user fees was complemented by decision rights that created accountability and legal liability. Together, these decision rights kept spending within HDB's means-in contrast with international experience with corporatization, where budget deficits have been a perennial problem. However, the informality of the decision rights precluded the exercising of those created to design long-term financial policy, resulting in timid capital expenditure plans. The second important objective of corporatization is improving hospital performance, including providing better service at a low cost for the patient. Eid argues that high-powered incentives are key. Among the most interesting of HDB's decision rights allocations was the pairing of claimant and control rights to produce high-powered incentives for the director. Not surprisingly, the most successful examples of corporatization worldwide have experimented with incentive schemes for hospital managers that seek to provide high-powered incentives in this way.
|Date of creation:||30 Nov 2001|
|Date of revision:|
|Contact details of provider:|| Postal: 1818 H Street, N.W., Washington, DC 20433|
Phone: (202) 477-1234
Web page: http://www.worldbank.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Mathias Dewatripont, 1989. "Renegotiation and Information Revelation Over Time: The Case of Optimal Labor Contracts," The Quarterly Journal of Economics, Oxford University Press, vol. 104(3), pages 589-619.
- Cremer, Jaques & Estache, Antonio & Seabright, Paul & DEC, 1994. "The decentralization of public services : lessons from the theory of the firm," Policy Research Working Paper Series 1345, The World Bank.
- Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1994.
"Renegotiation Design with Unverifiable Information,"
12375014, Harvard University Department of Economics.
- Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1994. "Renegotiation Design with Unverifiable Information," Econometrica, Econometric Society, vol. 62(2), pages 257-82, March.
- Mathias Dewatripont & Philippe Aghion & Patrick Rey, 1994. "Renegotiation design with unverifiable information," ULB Institutional Repository 2013/9591, ULB -- Universite Libre de Bruxelles.
- Armen A. Alchian & Harold Demsetz, 1971.
"Production, Information Costs and Economic Organizations,"
UCLA Economics Working Papers
10A, UCLA Department of Economics.
- Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-95, December.
- Mathias Dewatripont & Jean Tirole, 1994.
"A Theory of Debt and Equity: Diversity of Securities and Manager-Shareholder Congruence,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 109(4), pages 1027-1054.
- Mathias Dewatripont & Jean Tirole, 1994. "A theory of debt and equity: diversity of securities and manager-shareholder congruence," ULB Institutional Repository 2013/9593, ULB -- Universite Libre de Bruxelles.
- Paul Joskow, 1984.
"Vertical Integration and Long Term Contracts: The Case of Coal Burning Electric Generating Plants,"
361, Massachusetts Institute of Technology (MIT), Department of Economics.
- Joskow, Paul L, 1985. "Vertical Integration and Long-term Contracts: The Case of Coal-burning Electric Generating Plants," Journal of Law, Economics and Organization, Oxford University Press, vol. 1(1), pages 33-80, Spring.
- Hart, Oliver D & Moore, John, 1988.
"Incomplete Contracts and Renegotiation,"
Econometric Society, vol. 56(4), pages 755-85, July.
- Hardman Moore, John & Hart, Oliver, 1985. "Incomplete Contracts and Renegotiation," CEPR Discussion Papers 60, C.E.P.R. Discussion Papers.
- Oliver Hart & John Moore, 1985. "Incomplete Contracts and Renegotiation," Working papers 367, Massachusetts Institute of Technology (MIT), Department of Economics.
- Krueger, Anne O, 1974. "The Political Economy of the Rent-Seeking Society," American Economic Review, American Economic Association, vol. 64(3), pages 291-303, June.
- Oliver Hart & Bengt Holmstrom, 1986. "The Theory of Contracts," Working papers 418, Massachusetts Institute of Technology (MIT), Department of Economics.
- Klein, Benjamin, 1988. "Vertical Integration as Organizational Ownership: The Fisher Body-General Motors Relationship Revisited," Journal of Law, Economics and Organization, Oxford University Press, vol. 4(1), pages 199-213, Spring.
- Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:2726. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi)
If references are entirely missing, you can add them using this form.