A world-wide revolution in thinking about public sector management has occurred in recent years, termed the'new public management'It aims to improve the efficiency of service provision primarily through the introduction of market mechanisms into the public sector.

The earliest form of marketization in developed countries has tended to be the introduction of competitive tendering and contracts for the provision of public services.

In less wealthy countries, the language of contracting is heard with increasing frequency in discussions of health sector reform despite the lack of evidence of the virtues (or vices) of contracting in specific country settings.

This paper examines the economic arguments for contracting district hospital care in two rather different settings in Southern Africa : in South Africa using private-for-profit providers, and in Zimbabwe using NGO (mission) providers.

The South African study compared the performance of three'contractor'hospitals with three government-run hospitals, analysing data on costs and quality.

There were no significant differences in quality between the two sets of hospitals, but contractor hospitals provided care at significantly lower unit costs.

However, the cost to the government of contracting was close to that of direct provision, indicating that the efficiency gains were captured almost entirely by the contractor. (...)