Decentralization of Health Systems: Decision Space, Innovation and Performance

Decentralization of Health Systems: Decision Space, Innovation and Performance

Argues that the principal agent approach provides a promising way to analyze how decentralization might facilitate the achievement of broader health reform objectives. The principal agent approach was developed to analyze how central decision makers in firms (principals) use incentives and rules to encourage other managers (agents) to achieve their objectives. It assumes that agents are likely to have other objectives and better information about local conditions than do central authorities. Within the context of health reform, the principal agent approach is useful in analyzing the options available to central authorities, like the Ministry of Health, to encourage local institutions, such as municipal health departments, to make choices that achieve the objectives of the national health reform. These options include monitoring local officials, and using incentives, sanctions and rules to shape local decisions. This framework can be expanded by the concept of decision-space, which is a map of the range of choice allowed to local officials along a series of functional dimensions. Within this decision space, local authorities may make innovative choices that are different from the choices they made before decentralization and different from directed change that the central authorities impose on localities which have not been decentralized. This framework then suggests that we evaluate the performance of those localities with wide decision space to see if they make better choices than those with narrow decision space. Using examples from Colombia, Chile and Poland, the paper shows how the principal agent framework allows us to examine the way central authorities manipulate decision space, incentives, sanctions, and the control of information to encourage the achievement of national objectives, and to evaluate the effectiveness of this manipulation. [author]

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