Essays on Financial Incentives to Healthcare Providers

The numerous public sector compensation reforms in low income developing countries in recent years, reveal the need for rigorous evidence highlighting the most effective ways of incentivising front-line public sector employees. This cumulative thesis is composed of three individual research articles which provide insights on the promises and pitfalls of alternative approaches to the incentivisation of healthcare providers in the context of Zambia. The first and second articles evaluate the impacts of performance-based and unconditional financial incentives on health outcomes within the context of a field experiment and in the 'real world' outside the field experimental setting, respectively. The third article exploits a spatial discontinuity in eligibility to evaluate a different unconditional financial incentive, the rural hardship allowance. The thesis reveals that the productivity effects of performance-based financial incentives to healthcare providers may be weaker than previously thought. One potential reason that may account for this phenomenon, is the signal of payoff maximising behaviour to healthcare providers without signalling compensating effort enhancement. In the case of unconditional financial incentives, their productivity effects are found to be comparable to those of performance-based financial incentives. The fact that this type of financial incentive may not signal the same payoff maximising behaviour to healthcare providers could potentially account for this finding. Similarly, the rural hardship allowance is found to increase both the stock and quality of healthcare providers in under-served rural areas. In improving the effectiveness of health programmes providing financial incentives to healthcare providers, policymakers face a choice between making performance-based financial incentives more productive by incurring additional costs of directly incentivising the quality of healthcare, for example, or using unconditional financial incentives to achieve comparable improvements in health outcomes.