substantial investments and are arguably necessary to deliver a minimal level of patient safety.

We then show that the intervention meaningfully altered the market structure. In treated markets, private facilities that were unlicensed at baseline were 8.9 percentage points more likely to exit, and visits to public facilities at endline increased by 19%. Interestingly, even though facilities that were unlicensed at _baseline_ lost patients, the intervention did not decrease the patient load in unlicensed facilities at _endline_ , as closed facilities were replaced by new ones or facilities re-opened often without obtaining a license after being closed. The regulation also did not increase prices for the average patient or decrease the use of health facilities, even among the poor.

Despite the increased exits and the reallocation of patients, an accounting decomposition based on Chandra et al. (2016) combined with the market-level randomization shows that 87% of the improvement in the JHIC score was due to improvements within-facilities, with another 5% due to the exit of facilities with lower than the mean market quality. We thus conclude that this regulatory reform improved patient safety without deleterious impacts on the population, specifically the poor, with changes within facilities driving the bulk of the improvements.

Our final set of results explores potential mechanisms. Here, we are guided by a literature that studies how MQS can influence market outcomes through a direct regulatory channel, an information channel (Shapiro, 1986), and/or a market power channel arising from vertical differentiation in oligopolies (Ronnen, 1991). The predictions from these models differ: if facilities were interested only in meeting the regulatory requirements, they should have minimized the costs of their investments. Similarly, if information was the main channel, we should see larger improvements in the information treatment (T2) as well as a decline in the use of facilities among the poor. Uniquely among these theories, Ronnen (1991) is the only one who suggests that even well performing facilities may see quality improvements in response to the regulation as they increase investments in order to maintain market power.

In order to establish the plausibility of each of these channels, we establish that (a) facilities invested in improvements that were (far) more costly than what was required under the regulation and were not optimizing decisions to meet compliance thresholds; (b) there was no difference in treatment outcomes between the inspection only (T1) and the inspection + information (T2) arms; and (c) quantile treatment effects by market density show that impacts were highest at the _top-end_ of the distribution of patient safety, where facilities were least affected by regulatory requirements, as well as in markets with greater competition from public facilities. Therefore, in addition to a direct regulatory channel, we conclude that the data are consistent with market power as a source of inefficiency; nevertheless, we caution that the experiment was not designed to test a specific mechanism and we consider several alternate explanations in our discussion.<sup>4</sup>

> 4Our results on the mechanism are speculative because most facilities could have been sanctioned under the regulation and, therefore, beliefs over how the regulation functions and what other facilities, in turn, believe will determine facility investments. While previous work uses rational expectations to model beliefs regarding inspections (Duflo et al., 2018), in the case of a new system like the one we evaluate, such an assumption is harder to sustain.

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