ABSTRACT
The quality of public services is a fundamental concern when designing funding formulae. In particular, as Chapter 3 highlighted, the incentives implicit in most systems of formula funding run the risk of compromising the quality of services, defined as their effectiveness in securing desired standards of service. To some extent poor quality can be addressed by implementing appropriate service inspection and public reporting regimes alongside funding mechanisms. However, these can often be costly or ineffective in enforcing quality standards, and there is a growing conviction that carefully designed explicit incentives have a central role to play in securing desired levels of effectiveness in public services, particularly as the scope and timeliness of data on quality improves. This chapter examines incentives for quality specifically in the context of health care, where there has arisen widespread concern with poor quality (Institute of Medicine, 2001). However, the principles identified are likely to be of relevance to any public service for which usable quality metrics are available.
