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The central lesson to be learned from studying the case is to understand the challenges and constraints posed by contextual conditions in designing contracts in public–private partnerships (PPP) for financing and delivering health care in emerging economies such as India.

Perverse incentives, along with contextual conditions, led to extensive opportunistic behaviors among involved agencies, limiting the effectiveness of otherwise highly regarded innovative design of the program.

India’s “Rashtriya Swasthya Bima Yojana” or National Health Insurance Program, launched in 2007 provided free health insurance coverage to protect millions of low-income families from getting pushed into poverty due to catastrophic health-care expenditure. The program was implemented through a PPP using standardized contracts between multiple stakeholders from the public and private sector – insurance companies, hospitals, intermediaries, the provincial and federal government.

Teaching Notes are available for educators only.

CSS: 10 Public Sector Management.

The purpose of this paper is to explain the variation in the relationship between governance mechanisms and the effect of the relationship on contract performance, especially in controlling partner opportunism.

This study conducts a comparative case analysis of contract governance of “National Health Insurance Program” in India. The data are collected using field research through in-depth interviews and direct observation across three states in India.

The authors find that the governance mechanisms continue to complement and substitute, both in a dynamic manner, but until aligned with the nature of transaction, they are ineffective to mitigate opportunism, a critical dimension of contract performance. Inappropriate governance mechanisms inflate the gaps in incomplete contracts, resulting in partner opportunism.

The study draws findings from healthcare context and service-based contracting; therefore, the applicability of this study may vary in other contexts.

The paper highlights the need for building flexibility in the governance structure while designing contracts. Further, managers need to combine both governance mechanisms dynamically to align with the nature of the transaction to control partner opportunism.

The authors contribute to the existing debate on the conundrum of the relationship between governance mechanisms and provide a new explanation. The authors propose that it is not the specific governance mechanisms but the alignment of the governance mix with the nature of the transaction that determines the contract performance, especially control of partner opportunism.

Controlling partner opportunism in public-private partnership (PPP) requires effective adaptation of governance mechanisms over life-cycle. This paper proposes a process framework of effective governance adaptation for controlling partner opportunism in case of PPP.

Using in-depth interview data and extensive secondary data, a comparative case analysis of governance adaptation for controlling partner opportunism in two provinces in the “National Health Insurance Program” in India was conducted. The study uses contextual analysis and critical incident technique to identify the opportunistic behaviors and use processing tracing to map the adaptation of governance mechanisms for effective control of partner opportunism.

The paper makes several propositions and proposes a three-stage framework for effective governance adaptation for controlling partner opportunism. The study proposes that governance adaptation begins with the iterative process of discovering governance needs, followed by the dynamic interaction between governance mechanisms shaping the adaptation process. The process ends with two-dimensional alignment–alignment of partner's goal and alignment of governance mix with governance needs resulting in effective governance.

The paper contributes to the existing debates on governance mix and its effectiveness in PPP by proposing two-dimensional alignment for optimal governance adaptation leading to effective PPP governance.

Existing research presents contradictory findings about the effectiveness of governance mechanisms to control partner opportunism. The proposed process-view of governance adaptations tries to address this conundrum to some extent.