Long-Run Effects of Temporary Incentives on Medical Care Productivity

Abstract

We show that costs of adjustment as opposed to low perceived value may explain why improved quality care practices diffuse slowly in the medical industry. Using a randomized field experiment conducted in Argentina, we find that temporary financial incentives paid to health clinics for the early initiation of prenatal care motivated providers to test and develop new strategies to locate and encourage pregnant women to seek care in the first trimester of pregnancy. These innovations raised the rate of early initiation of prenatal care by 34 percent while the incentives were being paid in the treatment period. We also find that this increase persisted for at least 24 months after the incentives ended. We show that this is consistent with the presence of up-front costs from adjusting care processes that made it too expensive to develop and implement new strategies to increase early initiation of care in the absence of the incentives. Despite large increases in early initiation of prenatal care, we find no effects on health outcomes. (JEL C93, I11, I12, I13, I18, J16, O15)