1998 Reports

Institutional Structure of Health Care in Rural Cameroun: Structural Estimation of Production in Teams with Unobservable Effort

Leonard, Kenneth L.

Traditional healers in Cameroun are paid on an outcome-contingent basis, where payments are linked to the recovery of the patient. On the other hand, organizational providers (government clinics and hospitals and church-based clinics and hospitals) are paid a fixed fee at the time of consultation. Is this "custom" of payment method at the traditional healer a response to a problem of imperfect information in the supply of medical care? Eswaran and Kotwal (1985) suggest that share-cropping is a response to imperfect information in the supply of factor inputs owned by land-lords and tenants. Because different crops require different levels of inputs, one form of contract might be particularly appropriate for some crops but not others. We suggest that contingent-payment contracts are appropriate for some health production technologies and that fixed fee contracts are appropriate for other technologies, where a technology in health care is the medical response indicated be a set of presenting conditions. We fit a contractual model of health care demand to date on observed patterns of provider and contract choice using a Conditional Logit. Effort exerted on behalf of the patient's health is unobservable and is therefore only delivered according to the incentives that exist within the implicit contract between patient and provider. Patients create an approximate market for medical effort by choosing between discreet contract types. Institutions and organizations play an essential role in the creation of credible quality. With simulation we show that the government can greatly reduce transaction costs (and increase net utility) by specifically recognizing its role as an organization within the context of the institution of modern health care.