Applying the decision rights to a
            case of hospital institutional design
Corporatization, a hybrid between public
            sector ownership and privatization, is an organizational
            form that is increasingly being adopted in the social
            sectors. In the health sector, the high costs of public
            hospitals, new technological developments, changes in demand
            for primary and secondary health care, and efficiency
            considerations have necessitated shifts in organizational
            boundaries, leading to conversions in hospital ownership. In
            the past decade hospitals have been converted from public to
            nonprofit and from nonprofit to for-profit in industrial and
            developing countries alike. The debate around these
            conversions has centered mostly on the tradeoff between
            equity and efficiency involved in the shift from public to
            private provision of services. Eid argues that more
            important than this dichotomy is creating appropriate
            incentives and matching incentives with goals through
            institutional design. Because corporatization combines
            elements of both private and public ownership, it is
            difficult to design. Among the challenges is deciding where
            on the spectrum from a budgetary unit to a privatized
            enterprise a hospital should lie. Another challenge is
            aligning incentives-not just within the hospital but also
            between the hospital and the ministry of health. Eid draws
            on the decision rights approach to analyze how an innovative
            hospital in Lebanon, H�ital Dahr El-Bachek (HDB),
            corporatized itself and became the best in the public sector
            over a period of seven years. To study HDB's
            experience, she develops a decision rights analysis
            framework that tracks the formation, evolution, and dilution
            of decision rights. She finds that: There are important
            lessons from bottom-up, demand-driven institutional design
            that can inform the design of top-down, supply-driven
            institutions, such as laws and regulations. An understanding
            of mechanisms of risk sharing and high-powered incentives
            created from the bottom up can inform the design of
            corporatized organizations. Key to good design are decision
            rights complementarities that provide the most complete (and
            flexible) contract possible, regardless of where ownership
            lies. In designing systemwide institutions for
            corporatization, Eid argues, risk transfer is important in
            satisfying the two most important objectives of the reform.
            The first objective is establishing hard budget constraints
            to control sectoral costs. At HDB, the decision right to
            raise revenue through user fees was complemented by decision
            rights that created accountability and legal liability.
            Together, these decision rights kept spending within
            HDB's means-in contrast with international experience
            with corporatization, where budget deficits have been a
            perennial problem. However, the informality of the decision
            rights precluded the exercising of those created to design
            long-term financial policy, resulting in timid capital
            expenditure plans. The second important objective of
            corporatization is improving hospital performance, including
            providing better service at a low cost for the patient. Eid
            argues that high-powered incentives are key. Among the most
            interesting of HDB's decision rights allocations was
            the pairing of claimant and control rights to produce
            high-powered incentives for the director. Not surprisingly,
            the most successful examples of corporatization worldwide
            have experimented with incentive schemes for hospital
            managers that seek to provide high-powered incentives in
            this way.