Tradeoff between Centralized and Decentralized Health Services: Evidence from a Major Anti-Poverty Program in Mexico

This paper provides evidence on the effectiveness of centralized and decentralized health care organizations in the developing world. It compares performance by taking advantage of health care provider duplication in rural Mexico. The analysis benefits from differences in timing and models of health care decentralization, and from a quasi-random distribution of providers. In contrast with the most common predictions in the literature, the centralized provider of health services performs better. Households served by this organization face less regressive out-of-pocket health care expenditures (56% lower), and observe higher utilization of preventive services (15.5% more). Fortunately, state providers improve significantly in those areas targeted by Oportunidades (formerly Progresa), the main anti-poverty policy in Mexico. This program provides cash transfers to poor families conditional upon school attendance and receiving preventive care. The difference in outcomes between providers narrows in those areas where Oportunidades operates. These findings are robust to the possible effect of time and type of decentralization, state and health infrastructure effects, Oportunidades' early treatment, the use of alternative measures and other confounders.