Decentralized health governance, private action, and welfare: evidence from India

Abstract

This paper examines the impact of decentralization and partial financing of healthcare through local governments (Panchayats) in India on the health status and income of household members. We construct a healthcare and illness dataset from the nationally representative Rural Economy and Demography Survey (REDS) which is comprised of 14,841 adults from 238 villages. Using this dataset, we examine how various forms of decentralization affect the health status, health-seeking behaviour, and welfare of village residents. Choice of public healthcare is shown to have higher welfare impacts compared to other forms of healthcare providers and the out-of-pocket health expenditures. We show that individuals react not only to the supply-side measures by federal and state governments, but also to mechanisms of decentralized health governance. We also demonstrate that efficient choices concerning healthcare made by household members contribute significantly to the village-level economic activity. The traditional instrumental variable estimates are robust to post-double-selection LASSO specifications.