Preferences as a Determinant of the Optimal Level of Decentralisation in Health Care Resource Allocation : Theoretical Insights and an Empirical Application

Abstract

From an economic point of view, decentralisation is expected to increase social welfare through better matching of service delivery to preferences. The latter have been a central piece of the economic rationales for decentralisation but only indirectly. Thus, at the theoretical level, the main question addressed in this dissertation is: might preferences in themselves influence the impact of decentralisation on allocative efficiency, in the context of health care resource allocation? Regardless of which model (public choice theory or principal-agent theory) is used to explain the positive outcome above mentioned, in any case, the benefits generated by decentralisation depend on the assumption of variation in preferences across jurisdictions. However, there is little empirical evidence regarding this matter. Consequently, at the empirical level, the main question addressed in the current work is: does geographic variation in preferences, in the context of health care resource allocation, exist? To answer this question we developed and administered the same questionnaire (eliciting preferences) to two independent samples drawn from two Portuguese municipalities. Within our framework, central and local decision-makers are seen as alternative agents acting on behalf of local populations. Given the different capabilities possessed by agents, decentralisation of resource allocation generates some trade-offs between objectives. Depending on the trade-offs that local populations are willing to make, they will be better-off with one or the other agent. Therefore, we conclude that the specific preferences held by individuals might also determine in themselves whether or not decentralisation is optimal, when compared to centralisation. Concerning the empirical work, the principal conclusion is that the results do not corroborate the hypothesis of geographic variation in preferences, meaning that the theoretical discussion about the impact of decentralisation on allocative efficiency might have to be revisited. The empirical results further suggest that the geographical dimension of (in)equality in treatment matters to people and that a maximum opportunity cost of equality, in terms of health gain foregone, is likely to exist