Agency and incentives in the NHS internal market

This paper presents and assesses the structure of incentives created by the 1991 reforms to the U.K. National Health System. It argues that these reforms created a set of overlapping principal-agent relationships, in which the ownership of assets and the division of rewards from use of these assets is unclear. This lack of clarity and the form of performance monitoring used by the government as principal in these agency relationships seem likely to give limited incentives for improvements in efficiency in the medium term. The paper discusses possible means to improve incentives.