Dual Practice of Health Workers : Theory and Evidence from Indonesia

The paper assesses the impact of physicians' dual practice on public health services. Using a simple theoretical model we conjecture that dual practice may increase the number of patients seen but reduce hours spent at public facilities if public physicians lack motivation and/or if their opportunity costs are very large. Using health-facility (known as puskesmas) level panel data from Indonesia, we then test the validity of these conjectures, relying on the exogenous variation in the initiation of private practice among puskesmas heads after a 1997 health regulation (conditional on individual factors influencing private practice). Results using a difference-in-difference fuzzy regression discontinuity design, comparing the public health provision measures of eligible and non-eligible workers before and after the regulation support our conjectures. We also find evidence of weak monitoring, lack of motivation and high opportunity costs of public service provision explaining the results