Understanding Good Institutional Design in Hospital Corporatization: A Decision Rights Approach

Corporatization is a hybrid organizational form between public sector ownership and privatization that is increasingly being adopted in the social sectors. In the past ten years, hospital conversions from public to non-profit and from non-profit to for-profit have been common to both industrialized and developing countries.  The debate surrounding these conversions has centered primarily around the tradeoff between equity and efficiency when comparing public with private provision of services.  I argue that more important than this dichotomy is the creation of appropriate incentives, and the matching up of incentives with goals through institutional design. I draw on the decision rights approach to analyze how an innovative hospital in Lebanon corporatized itself and became the best in the public sector over a period of seven years. I study the hospital’s experience by developing a Decision Rights Analysis Framework that tracks the formation, evolution and dilution of decision rights. Among the most interesting of the decision rights allocations made was the pairing of claimant and control rights to produce high-powered incentives for the director.