African Traditional Healers and Outcome-Contingent Contracts in Health Care*

Traditional healers are a source of health care for which Africans have always paid and even with the expansion of modern medicine healers are still popular. This paper advances the unique view that traditional healers neither possess supernatural power nor do they take advantage of their clients: they use important elements of their practice to credibly deliver unobservable medical effort and therefore high quality care. An important element of their practice has previously been ignored: traditional healers use outcome-contingent contracts to deliver unobservable medical effort. This paper presents empirical evidence that, as a result of these contracts, traditional healers are popular because they provide more unobservable medical effort than other providers from which patients can choose. JEL Classification: D8 II