Can Decentralization Increase Social Capital among Bureaucrats? Evidence from Health Sector Reform in Honduras

Adriana Molina University of Colorado Boulder

Tara Grillos

Purdue University

Alan Zarychta University of Chicago

Krister Andersson

University of Colorado Boulder

Social capital among individual citizens is linked to improved governance outcomes, including public good provision. Yet very little attention has been paid to how social capital may be increased among a particularly important group of citizens: public sector bureaucrats, those individuals directly tasked with providing local public goods to populations in need. Decentralization, lauded across Latin America as a method for improving public service delivery, involves a fundamental reconfiguration of social interactions between actors at various levels of public organizations. This study draws on the health sector reform experience of Honduras to examine how governance reform may re-shape social capital among public officials and bureaucrats at the local level. Since 2007 Honduras has been rolling out decentralized health service delivery, and it is now implemented in about 90 of 298 Honduran municipalities. In this study we draw on original data from a series of lab-in-the-field behavioral games conducted with 230 Honduran bureaucrats. Specifically, we examine the ways in which changes in governance structure influence cooperation and social capital among the actual public officials charged with delivering health services to rural communities. Our preliminary findings suggest that decentralization does facilitate greater cooperation among bureaucrats, likely due to more frequent contact between individuals at different positions within the service delivery hierarchy, thus allowing access to greater reserves of social capital. Importantly, this result suggests that decentralization may improve the ability of regional and local bureaucrats to cooperate on developing solutions to complex social problems. Keywords: decentralization, social capital, causal inference, public goods, health, Honduras

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I. Introduction Social capital has been defined as “the norms and networks that enable people to act collectively” (Portes, 1998). Social capital is considered a mechanism to reduce negative externalities such as corruption (Kostyuk and Kostyuk, 2003), as well as to generally improve the outcomes of government programs and government performance (Freedheim, 1998; Evans, 1996; Putnam et al., 1993). Similar accolades have been attributed to decentralization reforms, which proponents argue can lead to greater efficiency in the delivery of public services, more equitable outcomes and higher accountability (Jimenez & Paqueo, 1996; World Bank, 1988; Fauget, forthcoming; Maro, 1990; Blair, 2000; Ribot, 2002). Decentralization, defined by the World Bank (2000) as a political process in which the lower levels of administrative units or establishments acquire decision power, resources and duties, changes the dynamic between government officials because it aims to reconstruct the government structure from a hierarchical or top-down management to a nested system characterized by increased participation and cooperation among government units, “where transparency is high and accountability to the governed acts as a binding constraint on public servants’ behavior” (Faguet, 2013).

The extensive literatures on social capital and decentralization both focus primarily on the link between civil society and local government as the key element to explain variations on the effectiveness of the local government providing public services and achieving better outcomes overall. Increased dialogue between them reportedly leads to more knowledge about local needs and increased accountability (Cohen and Peterson, 1999; Hayek, 1948; Ostrom et al., 1993; Ribot, 2002; Andersson, 2004). This study focuses on a less explored area, looking at the effect of decentralization on social capital among government officials, suggesting that better connections among them may also have a positive effect, improving the outcome of public services.

Empirical evidence has shown that social capital is affected by the political environment and the organizational structure of local governments (Newton, 1976; Muller and Seligson, 1994; Offe, 1999; Maloney et al., 2000), thus being potentially influenced by the structural changes of decentralization reforms. On the one hand, increased communication among government officials at the local level might increase their social capital and ultimately produce better outcomes in the public services provision. On the other hand, increased responsibilities and coordination challenges could hinder the relationship thus showing no clear improvements in the provision of public goods.

The case of the health sector in Honduras is of relevance to this analysis because the decentralization reform there introduced a set of structural changes to the government dynamic, but implementation has progressed slowly, allowing for comparison between centralized and decentralized municipalities in a quasi-natural experiment fashion.1 In particular the reform added an additional intermediate

1 According to Thad Dunning’s (2012) definition, a quasi-natural experiment (compared to a natural experiment) establishes comparisons across treatment and control groups but non-random assignment to treatment is a key feature of the design. The fundamental aspect of this design is to be able to claim as-if random assignment in natural experiments, which we argue in this paper in relation to a lack of correlation between the treatment assignment (decentralization reform), and the outcome variable of interest in this case (capacity to cooperate among public employees). In addition, matching techniques to mediate the comparison between treated and control isolating the demographic characteristics of the municipalities compared were used in the research design and the resulting weights for each region were included in the econometrical models of this paper.

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administrative agent at the local level, and increased coordination between the local service providers and central management. In addition, it changed the fiscal structure of the sector by providing higher independence at the subnational levels and incorporating a results-oriented transference of resources. Despite Honduras’ advancement of this reform, there is still limited evidence as to its impact on health outcomes.

The purpose of this study is to discern whether the decentralization reform has influenced the linking social capital among government officials in Honduras, allowing for a better work dynamic. We hypothesize that the institutional arrangements implemented by the decentralization reform allowed for increased communication and collaboration between the actors within the hierarchical chain of the health sector, thus increasing their social capital or propensity to cooperate. We utilize data from a set of games implemented in the field with local employees collected in 2017 from 30 Honduran municipalities to test this hypothesis.

The next sections present the literature review and theoretical rationale for the study. Section 4 describes health sector reform in Honduras. In Sections 5 and 6, we explain the experimental design and methodological approach. Section 7 and 8 present the results and discussion. Finally, the last section presents concluding remarks and recommendations.

II. Literature We describe briefly two schools of thought present in the literature relevant to our analysis. The first focuses on social capital, and its implications for the promotion of development, especially through collective action for public good provision. The second discusses the various hypothesized causal mechanisms linking decentralization to the improved provision of public services, from which social capital among bureaucrats is currently absent. Forms of social capital and the provision of public goods Social capital means cooperation, which should theoretically result in collective action (Putman, 1993; Coleman, 1988; Bardhan, 1995; Ostrom, 1995; Woolcock & Narayan, 2006; among many others). The central literature on social capital argues that social networks and civic engagement build social capital which then facilitates improved governance (Putman et al., 1993). In fact, a large body of empirical literature connects social capital to a range of improved governance outcomes, in areas like agriculture, water and sanitation, and public health provision (Brown and Ashman, 1996; Lyon, 2000; Bastelaer and Leathers, 2006; Shortt, 2004; Moore et al., 2006). However, there are different types of social capital. Woolcock (1998; 2001; Woolcock and Narayan, 2006) developed a framework outlining four types of social capital: bonding and bridging social capital at the micro-level within communities, bridging social capital between communities and macro-level institutions, and bonding social capital in macro-level social relations within public institutions. Social capital develops in diverse ways depending on the contexts in which individuals interact or the differences between them. For example, the poor tend to rely more on connections among relatives, neighbors or kinship, which is classified as bonding social capital, or relationships amongst individuals who share similarities and belong to a social network (Briggs 1998; Holzmann and Jorgensen 1999, Putnam, 2000). On the contrary, bridging social capital relates to connections between individuals with dissimilar characteristics in terms of socio-economic status, ethnicity, or other identifying

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characteristics (Szreter and Woolcock, 2004). Finally, the term “linking social capital” refers to connections among people who belong to differently influential positions or are part of different groups from a power perspective, and thus could be considered a special form of bridging social capital (Barr 1998; Narayan 1999; Kozel and Parker 2000; Woolcock 2001; Mayoux 2001). Bridging social capital at the macro level was conceived as instrumental for promoting effective government (Putnam et al., 1993) by increasing the cooperation and information sharing between citizens and government officials. Similarly, macro-level bonding social capital facilitates state-society relations and transcends the public-private divide (Evans, 1996; Harris, 2002). Similar to bridging between dissimilar groups or institutions, the concept of linking social capital is of particular interest, since it defines more explicitly the relationships between individuals in different positions within a vertical hierarchy (which can be related to power or control distributions both at the micro and macro levels). It can also include the connections of individuals to formal institutions (Woolcock, 2001 and Mayoux, 2001). The empirical literature has largely focused on bonding social capital or bridging social capital between communities and institutions. Less attention has been paid to linking social capital between differently situated members of a particular governmental sector. Yet, linking social capital may be the most likely to influence governance outcomes, as it involves the working relationships formed by government bureaucrats across hierarchical levels. Governance by definition involves this kind of social capital, and thus changes to governance structures seems likely to influence it. Mechanisms for the effects of decentralization Many scholars argue that decentralization is desirable (Lijphart 1977; Stepan, 2001; Horowitz 2003; Faguet 2004). Extensive literature describing the effects of decentralization reforms argues that local authorities are better informed and have access to more detailed information to make decisions that affect their constituents, while having higher accountability to them (Hayek, 1945; Oates, 1977; Diamond and Tsalik, 1999). On the contrary, opposing arguments point at the fact that decentralization can reinforce local power dynamics in detriment to the poor, especially in the presence of weak institutions often found in developing countries. According to their argument, elite capture can hinder the transparency of the policies implemented allowing for institutional arrangements detrimental to the public’s interest. This lack of efficacy of the decentralization reform is increased by institutional weakness and corruption (Agrawal and Ribot, 1999; Crook and Manor, 2000). Empirical evidence indicates that positive outcomes from decentralization are conditional on popular participation in local decision making (Singleton, 1998; Blair, 2000; Agrawal and Ribot, 1999; Agrawal and Ostrom, 2001; Andersson and Van Laerhoven, 2007), downward accountability from local governments to citizens (Crook and Manor, 1998; Ribot, 2002; Yilmaz and Serrano-Berthet, 2008), existent technical capacity at the local level (World Bank, 1988; Contreras and Vargas, 2002; Andersson, 2004) and a secure flow of economic resources to guarantee the sustainable provision of public services (Fiszbein, 1997; De Mello, 2000; Kaimowitz et al., 2000). While there are mixed results regarding the effect of decentralization on health outcomes more generally (Jeppson and Okuonzi, 2000; Bossert et al., 2003, Campos and Hellman, 2005), there have been consistent positive effects on reducing infant mortality rates (Robalino et al., 2001; Guanais and Macinko, 2009).

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Many different mechanisms are proposed to explain why decentralization should improve outcomes, including benefits associated to increased and better access to local information for authorities and higher accountability to constituents (Hayek, 1945; Oates, 1977; Diamond and Tsalik,1999). This includes a small literature on the effects of decentralization on social capital; in particular related to its effect on local participation in decision making and its benefits for increased technical capacity at the local level (Singleton, 1998; Blair, 2000; Agrawal and Ribot, 1999; Agrawal and Ostrom, 2001; Andersson and Van Laerhoven, 2007; World Bank, 1988; Contreras and Vargas, 2002; Andersson, 2004). Completely absent from this literature is the possibility that decentralization improves outcomes by increasing social capital among bureaucrats themselves rather than solely through citizen-state relations. Bureaucrats work at the boundary of citizen-state relations, and social capital between these workers perhaps stands to have the most direct effect on the direct provision of local public goods with which they are tasked. Linking social capital and decentralization

Some existing evidence suggests a positive interlinkage between fiscal decentralization and social capital, through a reduction in negative externalities like corruption (Kostyuk and Kostyuk, 2003), as well as a positive effect promoting more trusting behavior and individual’s deeper care for having their voices heard in government decisions (De Mello, 2010). Salman and Iqbal (2011) argue that fiscal decentralization promotes a higher response from local governments to the needs of the people, since social norms and contracts are easy to implement in small jurisdictions (Putman, 1993; Salman and Iqbal, 2011). Others contend that the increased number of players in the decision-making process that come with decentralization can favor policy stability thus strengthening the state (Cox & McCubbins, 2001; Tsebelis 2002; Treisman 2007). No work to date has directly explored the impact of decentralization on linking social capital among the public sector officials directly charged with public service provision.

III. Theory

Proponents of decentralization argue that local actors benefit from greater access to information and accountability at the local level, which improves overall performance. In this paper, we argue that the institutional changes imposed by decentralization reforms improve the dynamic between regional supervisors and local service providers, thus increasing the social capital between them through two mechanisms: 1) the greater flexibility of the regional health authorities and the local administrative intermediary agency (gestor) allows for more frequent communication and interactions, which ultimately increases trust among them; and that 2) changes in the resource transference dynamic towards a results based mechanism increases incentives to cooperate in order to achieve the established goals, which facilitates an increase in linking social capital, or social capital within vertical power structures. Frontline service providers, also known as street-level bureaucrats, are the local civil servants that implement central government policies and administer social services for communities around the world. Examples include teachers, case managers, police officers, and health workers, among many others. The public administration literature on policy implementation has emphasized the

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importance of frontline service providers in shaping how policy reforms are translated into local outcomes and ultimately experienced by individual citizens (Lipsky, 1980; Brodkin, 1990). This literature shows that frontline service providers, like the administrators and health workers in this study, do often have considerable discretion in how they serve clients, and thus their preferences and behaviors can influence the effectiveness of governance reforms across a range of settings (Scholz et al., 1991; Hupe & Hill, 2007; Brodkin, 2008; May & Winter 2009; Le Grand, 2010). Given their combination of influence and discretion, these civil servants are the critical agents at the end of the service delivery chain that regional and central principals attempt to monitor, steer, and ultimately control (Brodkin, 2008; May & Winter, 2009). At the same time, these local agents have the ability to leverage their informational advantage to circumvent efforts at control, sometimes for noble reasons and other times for malfeasant ones. For example, some providers will exercise professional expertise or overreach beyond formal mandates to meet the needs of their clients, while others will ration services, select only the easiest clients, or simply be absent from their posts (Lipsky, 1980). Furthermore, this most local tier of the public bureaucracy is increasingly, and appropriately, being identified as a key input to the development and enhancement of state capacity (Finan et al., 2015; Best et al., 2017; Pepinsky et al., 2017). For all of these reasons, many contemporary public sector governance reforms are designed to strengthen state effectiveness and incentivize productive behavior on the part of these individuals all in an effort to improve service delivery. The governance system within which frontline service providers work include not only the formal institutions of the state (e.g., government), but also other organizations and groups that are active in a given policy arena (Kettl, 2002; Ostrom, 2010; Oakerson & Parks, 2011). As such, these systems are actually populated by multiple principals and multiple agents jointly contributing to a diverse array of collective outcomes. In the health sector context, numerous scholars have emphasized the importance of complex accountability relationships among these principals and agents in shaping their incentives, positively or negatively, for delivering local services (Bossert, 1998; Bardhan, 2002; Brinkeroff, 2004). Responding to the perception of inadequate or suboptimal incentive structures, health sector decentralization is a public sector governance reform in that it attempts change the institutional arrangements of accountability across jurisdictions or functions of service delivery. Cross-level monitoring – where intermediary organizations supervise local health workers, and state departments of health oversee both – is common within decentralized governance structures, particularly those that include contracting-out or performance-based incentives like the Honduran case analyzed here. Importantly, this monitoring introduces new and potentially increased levels of interaction among frontline service providers on the one hand, and public officials and administrators at higher levels within the government hierarchy on the other. The predominant accountability perspective characterizing work on governance reform and bureaucracy in less developed countries views these monitoring interactions primarily as punitive or sanctioning exercises. Our research expands this point of view to consider monitoring interactions as also providing opportunities for local staff (agents) to gain additional support and resources from their supervisors (principals). Our primary argument is that decentralization, and related reforms like performance-based contracting, can create greater numbers of cross-level interactions relative to a traditional centralized structures, and these interactions generate linking social capital between frontline staff and higher-level public officials. The capital embedded within these cross-level social relationships then becomes a common resource that both types of bureaucrats, local and regional, can draw on to help them solve common social dilemmas. Specifically, this social capital provides a

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foundation for greater cooperation among the respective bureaucrats when addressing common, day-to-day challenges in service delivery. We assess these propositions using incentivized behavioral games with the actual staff members (local, intermediary, and regional) working in real decentralized and centrally-administered health systems in Honduras. We expect significant differences between decentralized and centralized municipalities in their measured contribution level to the public good game, as a yardstick for the social capital among participants in the game, including representatives from the regional health authority, the administrative intermediary, the local authority or mayor’s office and the street-level health providers.

IV. Background The primary health sector service provider in Honduras is the Ministry of Health (SESAL), which covers 60% of the population, while the remainder is mainly attended to by the Honduran Social Security Institute and the private sector (INE, 2012). In 2004 the Ministry of Health started a decentralization reform following a results-based financing system (RBF) in which service administrators at the local level, such as municipalities or NGOs, receive funds based on the size of the population covered, as well as performance of the services provided. The reform established changes both at the administrative and financial level for the sector, and shifted the sector from a curative oriented approach towards one with a higher emphasis on prevention. At the administrative level, introduction of the service manager (gestor) represented an innovation for the sector, adding an intermediary figure between the central government and the local providers (See Graph 1). These administrators are in charge of immediate monitoring and supervision tasks, as well as the allocation of financial resources. Under the new organizational structure, the gestor has the role of handling the personnel and inputs for service provision, as well as enforcing the achievement of the performance indicators associated with the financial transference from the central government; some of which include the percentage of pregnant women covered before their 12th week of pregnancy, prenatal, postpartum, vaccination, etc. (IDB, 2016). This change in the financial sustainability of the system also incentivized the local administrative units to seek collaborative efforts with other regional organizations such as NGOs or churches, among others, with the purpose of joining efforts to finance the achievement of specific goals within the health system. In addition, the change towards a more preventive model also included provisions for field workers or family health supervisors (promoters) in charge of visiting families living in difficult to reach areas to promote better practices and reduce their risk of contracting diseases. The reform reflects the “complexities of multiple, semi-autonomous actors (…) jointly co-producing services in a context where the state ultimately retains primary responsibility” (Zarychta, 2017). Despite some positive initial assessments of the reform’s results (Carmenate-Milian et al., 2016), its progress has been slow facing opposition from different groups arguing that the government is trying to privatize the service, which will ultimately increase prices and increase unemployment within the sector (radioprogreso, 2015; Criterio, 2015). As of 2011 about 15% of the country’s health units were managed by local associations, non-governmental or community-based organizations, and around 70 municipalities were operating with decentralized systems, allowing for a comparison between decentralized and centralized units. The process of implementing the reform throughout the country

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has followed a selection process based on two key features: central government’s discretion and support of international organizations financing and implementing the reform. The strong role of The World Bank and the Inter-American Development Bank in the Honduran reform meant a strong emphasis on the promotion of development through the reform, thus impoverished and under-served municipalities were initially targeted. In addition, the first feature in the selection process meant an “intergovernmental negotiation procedure subject to the influence of both external and internal actors across multiple levels of government” (Zarychta, 2017). Graph 1. Administrative chain in the Honduran health sector

Map 1. Decentralization coverage included in the sample analysis

The municipalities selected for this study (see map 1), include comparable jurisdictions, accessible and logistically feasible. The selection process used a matching technique based on the nearest neighbor (see appendix 1 for balance description). This was implemented using data from municipal surveys collected in 2017. A total of 20 decentralized municipalities were matched with 10 centralized ones, meaning that the matching ratio was 2-1 on average.

Centralized

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V. Experimental Design, Data and Methods This paper uses the context of a quasi-natural experiment combined with data from a public good game implemented in the field with local participants. The research design followed an evaluation style comparing the treated municipalities with the control ones, assuming the treatment as the decentralization reform (quasi-natural experiment). The game implemented in both treated and control municipalities intended to measure cooperation among the participants, as a proxy for social capital. The game presented a similar situation to their everyday jobs, in the sense that it required coordination between employees at different levels of the health service provision chain, while incorporating communication difficulties. To account for pre-existing differences among treated and control municipalities, and guarantee their comparability, we incorporated the weight assigned to each municipality from the propensity score matching balance used to select the sample of places where the game was implemented (see appendix 1). This means that we are accounting for the differences in the observed characteristics between treated and control municipalities (Freedman & Berk, 2008). The sample selection process was implemented in 2017, using observed characteristics from pre-reform implementation for all municipalities in the sample. As shown in table 1, the observed characteristics of treated and control municipalities after the matching process show no statistically significant differences for most of the variables considered, except for the proportion of indigenous population, the human development index, literacy and fiscal autonomy indexes. On average, the decentralized municipalities have slightly worse outcomes on literacy and human development, and they have a higher proportion of indigenous people. However, none of these differences strongly explain the differences in the level of cooperation during the game that we observe in the results. Furthermore, in our regression models, we include propensity score weights to address this imbalance and create a more closely matched sample. Table 1. Propensity score matching balance – Comparison table

Control Treated SMD -standarized mean differences

N MUNICIPALITIES 10 20 Total population 24426.60

(16200.73) 16859.33 (11045.17)

0.546

Distance to Tegucipalpa

87.32 (70.95)

118.39 (57.53) 0.481

Distance to State Capital

22.88 (14.53)

29.33 (12.96) 0.469

Prop. Indigenous Pop. 0.05 (0.18) 0.19 (0.21) 0.712* Civil Society Orgs. 2.27 (2.53) 1.57 (2.04) 0.304 Cash Transfer Beneficiaries PP.

5.06 (4.59) 3.62 (4.18) 0.327

Participation Mayoral Election

0.61 (0.10) 0.58 (0.11) 0.262

Margin of Victory Mayoral Election

0.19 (0.13) 0.12 (0.09) 0.596

Life Expectancy 69.91 (0.78) 69.45 (0.87) 0.553 Human Dev. Index 0.59 (0.02) 0.57 (0.04) 0.634* Education Index 0.58 (0.05) 0.55 (0.08) 0.573 Health Index 0.75 (0.01) 0.74 (0.01) 0.551

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Est. Income 1743.93 (213.76)

1633.14 (442.55) 0.319

Literacy Rate 70.68 (4.54) 66.13 (9.05) 0.636* Schooling Rate 33.93 (6.82) 31.44 (6.57) 0.371 Fiscal Autonomy Index

36.10 (20.74)

23.15 (17.56) 0.674*

Total Primary Care 6.59 (2.91) 6.00 (3.35) 0.187 Prop. Nurse-Only HCs

0.79 (0.10) 0.77 (0.12) 0.217

The data was collected during the summer of 2017, in 30 municipalities in Honduras (20 decentralized and 10 under traditional administration). A total of 230 individuals were invited to participate in a set of games framed as a study-workshop to promote teamwork among government employees in the health sector, however 5 participants arrived late in the day and so they are not included in the data analyzed in this paper. On average 8 individuals were present for each session, representing the different members along the hierarchical command chain in the sector (see Graph 1). As shown in the graph, each session included a representative from the regional health authority (designated with a code R), at least one representative from the local managing or administrative intermediary organization (designated here as AI),2 4 doctors or nurses working at one of the local health centers (designated here with code HC), and a representative from the mayor’s office in charge of supervising the health sector at the municipal level (designated with code M). The data captured participants’ decisions throughout each game, as well as their main demographic characteristics and survey questions about their level of understanding about the game. This paper uses evidence from the first game implemented with the participants, which was a public good game following the experimental design of Isaac & Walker (1988). Each participant was assigned 10 lempiras3 at the beginning of each round and given the opportunity to decide how many of those lempiras to invest in the group fund and how many to conserve for himself. All decisions were made individually and privately. In each round, the total amount sent to the group fund was doubled and then divided by the total number of participants in the group; in this sense, the total earnings for a single player in each round was equal to the amount saved in the private fund, plus the revenues from the group fund. Thus, the participants were instructed that the payoffs they received depended upon their own investment as well as the group’s decisions during the game. The players faced the same decision during a period of 10 consecutive rounds, but in the last 5 rounds they were allowed to communicate among themselves before making their individual choice. In the context of this game, higher contribution to the group fund is a measure of higher cooperation toward the group good. The game’s social optimum can only be achieved if all the participants send their entire endowment to the group fund in each round. Everyone in the group was given the same information about the game’s design and all players were informed of the total contribution to the group’s fund at the end of each round so they could adjust their future decisions using this information.

2 In centralized municipalities, where a formal administrative organization is not in place, there is usually an individual who helps with the coordination tasks at the local level in an informal fashion. This person was invited to participate in the game and was assigned a code G. 3 Honduran official currency.

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In this experimental design, the code assigned to each participant depended on the participants role in the municipality. In each municipality at least one representative for each code was invited to participate, allowing for comparisons between groups. Table 2 describes the major demographic characteristics of players for each code and type of administrative management. As shown, most participants were women in their 40’s with medium level of education (high school or university degree). The demographic differences among participants in decentralized and centralized jurisdictions are statistically significant but not considerable in magnitude (see annex 1 and 2). In total, the sample includes information for 14 jurisdictions and 30 municipalities, for a total of 225 individuals and 2,268 observations. Table 2. Demographic characteristics

Type of Admin. # Players #Obs. Gender (F=1) Education (categories) Age (Years) Players Region office

Decentralized 17 174 83% University (100%) 38.4 Centralized 13 130 92% University (100%) 41.8

Players Admin. intermediary

Decentralized 31 314 56.6% University (83.8%) High school (12.9%)

35.4

Centralized 13 130 92.3% University (100%) 48.6 Players Mayor’s office

Decentralized 15 152 40.8% High school (60%) University (13%) Secondary (13%)

43.5

Centralized 10 100 50% High school (50%) University (30%)

39.7

Players Health Center workers

Decentralized 85 854 61.6% University (67%) High school (24%

32.8

Centralized 41 410 80.5% High school (51%) University (38.5%)

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Main control variables in the analysis included the type of administration in the municipality where the game was implemented, the individual’s demographic characteristics, the number of participants in the session (because in some cases more or less than the 8 required participants arrived), the number of known individuals in the room, an indicator for the passing of rounds in the game, the possibility to communicate when making decisions, the total group contribution in the previous round, and dummy variables for the type of player (within the 4 categories described above). With the data available at hand, this paper proposes to answer the question of how decentralization in Honduras has influenced the group dynamic among government officials in the health sector, especially in terms of the cooperation along the vertical dynamic throughout the supervision and monitoring chain at the local jurisdiction level. The main hypothesis to be tested is that the reform has led to an increase in linking social capital among government officials, by changing the work dynamic among them and their incentives to cooperate. Ultimately it is expected that a higher social capital would lead to a better and more efficient provision of public goods. V.I Methodological approach Both graphical and statistical analysis were employed to study the level of contribution to the group fund by the participants, comparing municipalities with decentralized and centralized administration. For the graphical analysis, the average contribution for both groups was compared within the 10 rounds of the game. In addition, the behavior between both groups by type of player (R, AI, HC, or M) was also compared, to account for the presence of a differential effect of the reform over particular agents within the command chain, from the regional level to the local health providers.

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The statistical analysis uses the contribution level during the game (between 0-10 lempiras), as the dependent variable, including the type of administrative regime as the main explanatory variable and controls for the game’s parameters and participant’s characteristics. We present here the results from a linear estimation (OLS) incorporating the clustered characteristics of the observations. For a robustness check, we contrast the results of a multilevel Tobit with the linear estimation, to account for the censured characteristic of the contribution level and the grouped variance by individual and municipality levels (see appendix 3). Table 3. Descriptive statistics of main control variables

Average Standard deviation Min Max Gender (1=female) 67.7% 0.5 0 1 Education (categorical 4=high school) 4.5 0.7 1 5

Age 36.8 10.2 20 64 Decentralized (1=yes) 67.09% 0.7 0 1 #people in the session 7.5 1.03 5 9 #known people 5.4 1.7 0 9 Trust in others (yes, no) 0.4 0.5 0 1 Trust in the community (degree 1-5) 3.3 0.8 1 5

VI. Results

The basic graphical representation of the game results illustrate a difference in the average contribution level of the participants in decentralized municipalities compared to jurisdictions with traditional administration. In particular, graph 2 shows that the average level of contribution in decentralized municipalities increased more (relative to the centralized group) during the last 5 rounds when communication was allowed. This observation is congruent with the hypothesis of an improved ability to cooperate among government officials in the jurisdictions where the reform had already been implemented. Graph 2. Average contribution by type of administration

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Table 3. Econometric results with clustered standard errors by individual

DV: Individual contribution to the public fund VARIABLES (1)

Multilevel tobit (2)

Linear model Decentralization 0.498 0.365 (0.304) (0.299) Communication 2.602*** 2.070*** (0.338) (0.308) Decentralized#Communication 1.141* 0.771** (0.656) (0.366) Player Health Center -0.324 -0.190 (0.288) (0.277) Player Admin. Intermediary -0.612 -0.369 (0.449) (0.363) Player Region office -1.044* -0.697* (0.569) (0.380) Round (1-10) -0.252*** -0.192*** (0.0683) (0.0451) Lagged group contribution 0.0892*** 0.0596*** (0.0159) (0.00574) #players in the room -0.439** -0.297*** (0.200) (0.0969) People known -0.108 -0.0828 (0.116) (0.0619) Q2_female 0.219 0.150 (0.389) (0.208) Q1_Edad 0.0354*** 0.0311*** (0.00981) (0.0107) Q2_Education 0.428*** 0.324** (0.164) (0.154) Q5_ General trust 0.204 0.126 (0.332) (0.218) Q6_ Trust in community -0.242** -0.185 (0.122) (0.125) Constant 3.806* 3.923*** (2.216) (1.286) Observations 1,980 1,980 R-squared 0.273 Number of groups 14

Robust standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1

We found a positive statistically significant effect of the reform on contribution to the public fund, thus demonstrating higher cooperation among bureaucrats in the decentralized setting. However, this effect is mediated by the role of communication. Individuals in decentralized municipalities contribute (or cooperate) more than individuals in jurisdictions with regular administration when communication is allowed, by 0.7 lempiras on average. This difference is robust to different model specifications and

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although it is not large in overall magnitude, it does represent a significant difference in the context of the game. The role of communication as a mediator suggests that the difference is not due to a higher degree of altruism or regard for others in the decentralized setting, but rather a greater capacity to coordinate with each other to agree on a cooperative equilibrium. In terms of the particular behavior by type of employee (within the 4 categories described earlier), the results show that compared to the representative from the mayor’s office, the representatives from the region office (the highest entity in the supervision chain for the sector) contributed on average 0.7 lempiras less. Additionally, later rounds are associated with a reduction in the individual’s contribution by 0.2 lempiras, while being able to communicate (in the last 5 rounds) increased contribution significantly, by 2 lempiras. A higher group contribution in the previous round increased slightly the contribution in the current round, by 0.06 lempiras, which is consistent with the game dynamic, since past group cooperation influences current individual behavior. Similarly, a larger number of people in the group reduced the contribution (by 0.3 units per additional player), since it requires greater effort to coordinate within larger groups. We find no significant effect of the number of people in the group that knew each other previously, but this is likely because there is reduced variation in the sample: usually participants knew each other or had talked to each other at least once previously in the context of their jobs. In terms of the demographic characteristics of the participants, we find that education and age both contribute to explaining variations in the individual contribution to the public fund. Education exhibits the larger effect with one higher educational levels generating a 0.3 unit increase in contributions. We also controlled for a survey measure of generalized trust, but effects were highly sensitive to model specification. This result supports the idea that there is a difference between individual trust and collective cooperation in a group dynamic. A higher perception of individual trust towards members of the community doesn’t necessarily translate in a greater willingness to trust their money in the hands of their co-workers or supervisors.

VII. Discussion The decentralization reform in Honduras has fostered a de-concentration of oversight from the national level and distributed it to Regional Health Authorities (players R in the game), as well as a delegation of functions to local government organizations. As part of the reform a contract with a local administrative intermediary organization is established (players AI in the game), transferring funds to this organization in exchange for performing the role of administering the network of health units under the supervision of the corresponding regional authority. With the reform, the transference of resources is based on the local characteristics (such as the population density and poverty level), as well as the achievement of sector targets. This last condition creates incentives for more cooperative behavior among local organizations as an attempt to work collaboratively for the achievement of established goals and to guarantee continuation of the transference of funds to local units. The evidence points to higher cooperation in the context of the game in groups from decentralized municipalities, as a proxy for higher social capital among health service providers, supervisors and collaborators at the local level in decentralized municipalities when compared to centralized jurisdictions. The role of a formal administrative organization who supervises more closely and frequently the local service providers could be a key agent promoting cooperation in decentralized jurisdictions due to the increased transference of information and more frequent interactions.

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Centralized municipalities operate under the supervision of the regional health authorities, which leads to less frequent monitoring and places the coordination role in the hands of a central hospital coordinator or the mayor’s office. This lack of formalism and regularity in the monitoring tasks may hinder the development of higher cooperation among individuals within the power chain, generating doubts about the transparency of the process. According to Seabright (1996), one of the advantages of decentralization is that it allows for better coordination between administrative units, examining the distribution of power in central, regional and local governments, since the governments at each level pursue re-election goals, determined by the level of welfare enjoyed by the population. It is key to point out that in the case of Honduras the reform changed the vertical distribution of power across levels of government and between public and private or non-government organizations in the sector, by including and formalizing the role of an administrative intermediary (which could be either a private, public or non-government organization), chosen on the basis of its institutional capacity and experience in the sector. The new system creates institutional mechanisms for coordination between the regional health authority and the local administrative entity (gestor), as well as incentives to promote cooperation between the local authority (the mayor’s office), the health service providers and the administrative coordinator, in order to achieve the established goals for the sector, thus guaranteeing a sustainable flow of economic resources. An additional mechanism in explaining the increased cooperation we see in the game relates to the fiscal incentives associated with the reform. In the case of the Honduran reform, the promise of transferences based on results increases the pressure to perform. However, because there is high uncertainty about the regional capacity to access those resources, due to the potential under-funded quality of the reform, the local organizations are forced to join forces to seek resources to finance or co-produce the provision of local services. Honduras has one of the lowest levels of investment in the health sector (US$202 per capita) when compared to the average for Latin America and the Caribbean (US$695.57), and more pressing “although by law the government is supposed to contribute 0.5% of the salary from contributing employees, these payments have been made irregularly and when (…) not made, the debt is (…) paid under other administrations either through transfers from the Ministry of Finance or government bonds” (IDB, 2017). Because of this, the reform generates an additional push to collaborate in order to ensure the sustainable access to transferences, as well as to join efforts to seek additional funds to guarantee the financial capacity to maintain the service provision at the local level. If this incentivized collaboration creates social capital, it may in turn increase cooperative tendencies even in the absence of those incentives. Following Axelrod’s (1984) explanation for the origin of social capital, the decentralization reform had a positive effect on the group’s willingness to act collectively because “they value future payoffs and expect to interact again an indefinite number of times” (in Boix & Posner, 1998). The effect of the reform on the propensity to cooperate is not significantly different depending on the role of each participant in the local health sector chain, except for the case of the regional office representatives, who contributed less than the rest on average. This result is in line with a wide body of literature concern about the effect of power asymmetries on the achievement of collective action, starting with Olson’s (1965) seminal hypothesis about the role of privileged groups providing the public good in cases with high heterogeneity. Our results, however, align with Cardenas (2003) in rejection of Olson’s hypothesis, showing that real social distance among players can decrease the propensity to cooperate, and in particular, individuals who are higher up in the power distribution tend to contribute less than the rest (Cardenas et al., 2010).

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VIII. Conclusion This paper explores the effect of a decentralization reform on improving the linking social capital among government officials in charge of providing health services to local jurisdictions in Honduras. The experimental evidence presented here indicates that groups from decentralized municipalities who share a hierarchical structure among them cooperate more than groups from municipalities with regular, more centralized administration. Overall, the evidence suggests that individuals working where the reform has been implemented share higher social capital, even after controlling for the effect of their individual demographic characteristics and the game’s design features. This result could be explained by the increased communication and monitoring frequency incorporated with the figure of the administrative local body (gestor), as well as the additional incentives to cooperate between local agencies in the health sector, in order to seek financial funds for the achievement of goals established by the central government and to guarantee the sustainable flow of economic transferences to the region. Despite the benefit of promoting higher cooperation among the different actors within the local health sector chain, decentralization could bring additional challenges to local authorities in the health sector. For example, the reform may demand an administrative and operational capacity that is not yet present in all municipalities, while increasing pressure on local authorities for the achievement of the sector goals at the local level, in detriment to the quality of services and sustainability of the human assets. In addition, the tension related to the risk of under-funding in the implementation of the reform generates extra pressure upon the local authorities to guarantee access to the resources and may threaten the sustainability of the reform’s achievements. Future measures of group cooperation between the different local organizations and public employees could provide answers about the long-term effect of the reform on the governance dynamic for the sector. Similarly, further investigation is necessary to explore the degree to which the increased cooperation among government officials along the hierarchical structure of the local health sector is actually translated into a better and more efficient service provision. References Agrawal, Arun and Elinor Ostrom. (2001). “Collective Action, Property Rights, and Decentralization

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Appendix Appendix 1. Imbens-Rubin Logit, Nearest-neighbor matching, Ratio=3. All treated municipalities

Mean control Pre-Match

Mean Treated

Mean Control Matched

SC Control Mean Diff.

Propensity 0.44 0.64 0.58 0.22 0.06 Total Primary Care HCs 5.20 6.00 6.59 2.91 -0.59 Prop. Nurse-Only HCs 0.77 0.77 0.79 0.10 -0.02 Total Consults PP 2.27 2.23 2.03 0.64 0.19 First Prenatal Consults PP 1.17 1.06 1.14 0.25 -0.08 Follow-up Prenatal Consults PP 3.16 2.68 3.02 1.03 -0.33 Postpartum Consults PP 0.75 0.60 0.73 0.30 -0.13 First Diarrhea Consults 0.19 0.22 0.18 0.08 0.04 Follow-up Diarrhea consults 0.02 0.03 0.03 0.02 -0.00 Growth Monitoring Consults PP 2.21 2.01 2.06 0.67 -0.05 Distance to Tegucigalpa 119.88 118.39 87.33 70.95 31.06 Distance to State Capital 25.02 29.33 22.88 14.53 6.45 Prop. Indigenous Pop. 0.11 0.19 0.05 0.18 0.14 Civil Society Orgs. 1.60 1.57 2.27 2.53 -0.70 Cash Transfer Beneficiaries PP 4.31 3.62 5.06 4.59 -1.44 Participation Mayoral Election 0.60 0.58 0.61 0.10 -0.03 Margin of Victory mayoral election 0.18 0.12 0.19 0.13 -0.07 Prop. Null Votes 0.08 0.10 0.10 0.04 0.01 Liberal Party Mayor 0.40 0.52 0.35 0.50 0.17 National Party Mayor 0.60 0.48 0.65 0.50 -0.17 Libre Party Mayor 0.00 0.00 0.00 0.00 0.00 Other Party Mayor 0.00 0.00 0.00 0.00 0.00 Life Expectancy 70.12 69.45 69.91 0.78 -0.46 Human Dev. Index 0.60 0.57 0.59 0.02 -0.02 Education Index 0.59 0.55 0.58 0.05 -0.04 Income Index 0.48 0.46 0.48 0.02 -0.01 Health Index 0.75 0.74 0.75 0.01 -0.01 Est. Income 1803.46 1633.14 1743.93 213.76 -110.78 Literacy Rate 70.92 66.13 70.68 4.54 -4.55 Schooling Rate 34.59 31.44 33.93 6.82 -2.48 Fiscal Autonomy Index 28.92 23.15 36.10 20.74 -12.96

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Appendix 2. Mean differences tests

Mean Difference Test Gender (P-Value)

Education (P-value)

Age (P-value)

H0: Centralized = Decentralized jurisdictions’ mean

Diff 0.19*** p-value (0.00)

-0.07 p-value (0.03)

5.07 p-value (0.00)

Decentralized jurisdictions, Player type comparison (mvtest: equal means)

p-value (0.00) p-value (0.00) p-value (0.00)

Centralized, Player type comparison (mvtest: equal means)

p-value (0.00) p-value (0.00) p-value (0.00)

Players A: Regular admin=Decentralized jurisdictions

Diff 0.1 p-value (0.12)

Diff 0.5 p-value (0.00)

Diff -3.8 p-value (0.02)

Players G: Centralized=Decentralized jur.

diff 0.36 p-value (0.00)

diff 0.19 p-value (0.00)

diff 13.2 p-value (0.00)

Players R: Centralized=Decentralized jur.

Diff 0.09 p-value (0.01)

No diff Diff 3.4 p-value (0.00)

Players C: Centralized=Decentralized Diff 0.2 p-value (0.00)

Diff -0.3 p-value (0.00)

Diff 4.4 p-value (0.00)

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Appendix 3. Robustness check: OLS versus Double-Censored Tobit Regression This section provides a comparison of different specifications (OLS vs Double-censored Tobit). The columns show the coefficients and average marginal effects. This evidence suggests that both estimation methods yield similar results, with OLS being more conservative in the assessment of the effects of the reform (focus of this paper), and therefore being used in this paper as main evidence.

DEPENDENT VARIABLE: INDIVIDUAL CONTRIBUTION TO THE PUBLIC FUND (1) (2) VARIABLES MULTILEVEL

TOBIT LINEAR MODEL

DECENTRALIZATION 1.073*** 0.768*** (0.355) (0.225) PLAYER C -0.249 -0.125 (0.289) (0.279) PLAYER G -0.598 -0.344 (0.476) (0.373) PLAYER R -0.989* -0.641* (0.542) (0.375) COMMUNICATION 3.424*** 2.630*** (0.421) (0.215) ROUND -0.273*** -0.206*** (0.0632) (0.0459) LAGGED GROUP CONTRIBUTION 0.0911*** 0.0609*** (0.0149) (0.00564) #PLAYERS IN THE ROOM -0.470** -0.319*** (0.203) (0.0976) PEOPLE KNOWN -0.113 -0.0859 (0.118) (0.0683) GENDER 0.150 0.0941 (0.369) (0.205) EDUCATION (LEVEL) 0.405** 0.298* (0.166) (0.152) AGE 0.0342*** 0.0300*** (0.00940) (0.0107) GENERAL TRUST 0.290 0.196 (0.354) (0.219) TRUST IN COMMUNITY -0.273** -0.217* (0.128) (0.124) CONSTANT 3.897* 4.066*** (2.123) (1.298) OBSERVATIONS 1,944 1,944 R-SQUARED 0.270 NUMBER OF GROUPS 14

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Graph 4. Predicted probability of contribution levels by type of administration