Auditing, Policing, and Enforcing
Given the multiple information asymmetries noted above, market mechanisms introduce myriad opportunities for manipulating information. In schools, officials and teachers have incentives to ‘adjust’ information for parents and government-monitoring agencies, distort the curriculum by ‘teaching to the test,’ and, at an extreme, even cheat on testing instruments designed to monitor quality (Levitt and Dubner 2005). If quasimarkets are based on per capita affiliation, then providers have incentive to exclude unhealthy patients or difficult students (both of which are allowed under Chile system). And, providers have more information to facilitate discrimination and ‘cream skimming’ than do regulators trying to prevent these practices. If payment is per service, as is often the case in healthcare, the incentive is to provide unnecessary services. As Chap. 1 emphasizes generally, monitoring and accountability are crucial.
Even if information is not a problem, enforcement can be. Weak legal systems make contracts and sanctions hard to enforce. Contract enforcement is a major issue in quasi-markets that promote competition for government contracts, especially where there are few providers and high barriers to entry. Moreover, reforms may specify certain payments from autonomous or private insurers, but may not spell out the penalties in the event of delayed or no payment (as in Argentine hospitals).
In the beginning of the 1990s, the Costa Rican health sector went through a series of reforms. Public funding and universal coverage were kept in place, but some non-profit cooperatives were contracted out to provide primary healthcare. In the 2000s, the model was extended to for-profit institutions as well. However, conditions faced by cooperatives and private providers differ in many aspects—from the responsibility over facilities to the authorization to retain profits. To prevent management flexibility from reducing service quality, contracts were very specific regarding the population to be covered, types of services to be delivered, and attainment indicators. Also, a system to monitor and evaluate activities was established, so that private providers could be effectively penalized for underperforming. Cercone et al. (2005) present evidence that cooperatives were able to meet quality and coverage standards, while diminishing costs, thus performing better than traditional providers.
Outright corruption has contributed to the low efficacy of public spending in traditional social services. Some forms of decentralized competitive service provision may remove funds from the reach of politicians who would divert them to other uses. However, decentralization and greater autonomy of front-line providers, in the absence of transparency and adequate monitoring, can open up new opportunities for corruption. Critics of bureaucracy and red tape often forget that many of the measures that create so much bureaucracy and paperwork were precisely designed to detect and deter patronage and corruption (Heredia and Schneider 2003). So, as additional measures are adopted to require additional information, monitoring, and closer regulation, quasi-markets may come to resemble more the bureaucracies they were intended to replace.