Health facility quality peer effects: Are financial incentives necessary?

This paper examines peer effects in health facility quality in South Africa. Specifically, we investigate whether health facilities adapt their quality in response to changes in the quality of peer facilities, even in the absence of material incentives for doing so. Using a national census of public primary health facilities, we exploit data on structural and process components of quality, examining how these measures change from 2015 to 2017. We examine facilities strategic interactions using both a spatial econometrics approach and a more traditional quasi- experimental approach exploiting a quality improvement program as a source of exogeneous variation to estimate the response of facilities to changes in the quality of their peers. We find evidence of quality peer effects between primary health care facilities, with a 10-unit increase in average District facility quality causing facilities to increase their quality by 3.6 units. Given the lack of financial incentives, we propose prosocial motivation and reputational concerns as the mechanism inducing facilities to respond to changes in peer quality. This finding is consistent with recent literature which has stressed the role measurement and public reporting can play in improving public service, and particularly health care, provision. Importantly, our findings have significant policy implications suggesting the provision of relative performance information, allowing for peer comparisons, can induce a form of quality yardstick competition and be a credible quality improvement policy which may be considered alongside health financing reforms.