Making Bricks from Straw

Why do health facilities in developing countries do so poorly? This paper examines the role of financial constraints. I describe an experiment in which we surprised health workers in randomly selected public health clinics in Nigeria with a ₦600,000 grant paid out in installments over one year. Its administration was left entirely to health workers. The award led to large productivity gains. Using expenditure data combined with novel textual data, I provide an explanation for these effects. I show the award increased investments in physical and human capital, led to lower prices for patients, and inspired health workers to do better.