incentives and their limitations. Some comments on the provision of incentives when contracts cannot be written or enforced conclude the paper.

As a point of departure, let us assume that the government can actually see and contract for all relevant dimensions of health care. In this case, there is no incentive problem per se as it is possible to ensure that the wage at which the universality objective is met will yield the expected services. The problem is that this level of wages may be very high - much higher than is likely to be forthcoming in any practical sense. One reason is the existence of greater earnings opportunities in richer, more urban areas of the country. On top of this, of course, is the fact that medical personnel are generally much better educated and potentially have higher incomes than the country average and tend to want the amenities that go along with urban life. If they have families they will tend to want to give their children educational opportunities usually found in cities. A recent survey of medical personnel in Indonesia discovered that the anount of money necessary to get them to relocate to the more remote areas of the country (generally away from Java) was several multiples of actual wages.<sup>3</sup> At first glance, there does not appear to be a problem of ineffective incentives, but one of insufficient budget. There could well be good, economic, reasons for insufficient funds. If taxes to pay for government expenditures are distortionary, and most tax systems in poor countries are very distortionary indeed, then there is an additional social cost of meeting the universality objective. This gives a good reason to see if there is a way to reduce the overall cost of provision by exploiting the design of contracts to doctors (see section 2).

At the other extreme, we can assume that the government can observe nothing about physician performance - that is, it can't tell if there is a doctor in attendance in a village at all much less if she is charging (illegally if a public facility) or providing conscientious care. This is something of a straw man but does raise one point. In this case, a publicly employed doctor is indistinguishable from a completely unregulated private doctor (except that the public employee costs the government more). Except in idiosyncratic cases (such as a dedicated altruist or a doctor wanting to live in her home village regardless of income) there is no reason to believe any of the poor areas will be covered. Not only will it be costly to induce urban doctors to move (the constraint of the preceding paragraph), but without performance incentives the real cost of services will escalate dramatically. One is then left to wonder where, given the inherently high cost, the desirability of universal provision comes from.

Intermediate within these extremes are cases in which some sort of information is available or can be obtained at some cost, say by improved monitoring. In such cases we will look at the tradeoff between improving performance with incentives and controlling costs imposed by different information structures. Of course, incentives can be provided

> 3 Chomitz et al. (1998). Interestingly, they did find that promises of placement in graduate education would induce doctors to relocate. However, this seems to depend on a highly distorted, non-transparent system of graduate admissions, leverage that would disappear should medical education be reformed.

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