Maternity Hospital Bribes

Yesterday, everywhere I turned, I found this same story. I read it first on Vikram’s blog, then at Sepia Mutiny, then India Uncut, and even Marginal Revolution. The story comes from the New York Times:

Just as the painful ordeal of childbirth finally ended and Nesam Velankanni waited for a nurse to lay her squalling newborn on her chest, the maternity hospital's ritual of extortion began.

Before she even glimpsed her baby, she said, a nurse whisked the infant away and an attendant demanded a bribe. If you want to see your child, families are told, the price is $12 for a boy and $7 for a girl, a lot of money for slum dwellers scraping by on a dollar a day. The practice is common here in the city, surveys confirm.

This practice seems so shocking; it seems incredible. I wondered how such a practice could start? Were these public hospitals or private hospitals? Were the doctors and nurse there adequately paid? As an economist, I was naturally curious to see how such petty corruption comes about.

The problem with the New York Times article is that it doesn’t adequately explain the context of this corruption. The real story is between the lines.

Although the article casually claims that, “the practice is common here [Bangalore]” a careful reading of the article indicates that the only hospital that the reporter writes about is Austin Town Maternity Home and their clientele is entirely poor. Nesam and the other women who give birth at that hospital don’t pay any formal payments to Austin Town Maternity Home. Presumably, Austin Town is not a private hospital because the article ends with this quote:

Margaret, a 50-year-old grandmother who uses only one name, said she paid to see her 19-year-old daughter's baby the day he was born, Feb. 16. She earns only $10 a month as a maid and said that she was determined to pay no more than $7 - and that she did not.

"Though I felt bad and a little angry, a private hospital would have cost at least 2,500 rupees," or about $60, she said. The bribe was still costly but, by the calculus of poverty, a relative bargain.

My educated guess is that the workers at Austin Home are severely underpaid relative to the private hospitals. This has two effects: it drives away competent workers and it attracts not very nice ones. These not very nice nurses and doctors are probably a touch bitter that they missed out on the better salary, and feel they deserve more. So the bribes are a way for these workers to supplement their earnings and Austin Home looks the other way because it is an effective (but extremely callous) way of extracting some partial payment from the families who use their facility.

Likewise, the city of Bangalore looks the other way because they know what the problem is. If you provide a free hospital with very nice services, then even the middle class will use the service. They don’t want to put the private hospitals out of business, so they look the other way.

The callous treatment that the woman receive from Austin Town is, in effect, designed to drive them away. They don’t pay much for the service, so they get what they pay for. It is incentive compatibility: a mechanism to prevent everyone from using a “free service”. Basically it is reason number 5,145,874 why poverty stinks.

I would be willing to bet that if you pay $60 to give birth at a nice private hospital, you don’t need to pay any bribes. The article should have mentioned this, though.