Allocative Inefficiency of General Hospitals in Poor Countries: A Case Study of Uganda

  • Max Ajanga, PhD Kyambogo University
Keywords: Efficiency, Drugs, Medical staff, patients, hospitals, Utilities
Share Article:


The increasing costs of healthcare arising largely from the growing population and emergence of non-communicable diseases have exerted pressure on healthcare budgets in poor countries. With a funding gap of 7% to realize WHO recommended target of 15 percent of GDP in Uganda, there is a need for hospitals to be efficient in allocation of financial resources in order to provide the required level of healthcare services. Most studies on Uganda have focused on the technical inefficiency of general hospitals and evidence on their allocative inefficiency is limited.  Understanding the sources of inefficiency in the allocation of finances in general hospitals in Uganda is important to improve their performance. The purpose of this study was to determine the allocative inefficiency of the general hospitals in Uganda in order to provide a source of misuse of public allocations to a particular general hospital. Panel data from 22 general hospitals for the period 1997-2007 were used. Allocative inefficiency was estimated using Stochastic Frontier Analysis. The findings show that general hospitals are systematically allocatively inefficient in distributing the public funds given to them.  The allocative inefficiencies value is high on payments of employee benefits (34.8 percent), followed by the purchase of drugs (29.2%) and lastly, costs on utilities like electricity and water (14.1%). To address the existing allocative inefficiencies, general hospitals in Uganda can improve the process of hiring of labour and management of staff payroll; monitor procurement of drugs, and reduce wastages in the use of utilities.


Download data is not yet available.


Aigner, D., Lovell, C. K., & Schmidt, P. (1977). Formulation and estimation of stochastic frontier production function models. Journal of econometrics, 6(1), 21-37.

Baltagi, B. H. (2005). Econometric Analysis of Panel Data. 2nd Ed. New York: John Wiley & Sons.

Battese, G. E., & Coelli, T. J. (1995). A model for technical inefficiency effects in a stochastic frontier production function for panel data. Empirical economics, 20(2), 325-332.

Brissimis, S. N., Delis, M. D., & Papanikolaou, N. I. (2008). Exploring the nexus between banking sector reform and performance: Evidence from newly acceded EU countries. Journal of Banking & Finance, 32(12), 2674-2683.

Caballer-Tarazona, M., Moya-Clemente, I., Vivas-Consuelo, D., & Barrachina-Martínez, I. (2010). A model to measure the efficiency of hospital performance. Mathematical and computer modelling, 52(7-8), 1095-1102.

Carey, K. (1997). A panel data design for estimation of hospital cost functions. Review of Economics and Statistics, 79(3), 443-453.

Choi, J. H., Fortsch, S. M., Park, I., & Jung, I. (2017). Efficiency of US hospitals between 2001 and 2011. Managerial and Decision Economics, 38(8), 1071-1081.

Eakin, B. K. (1991). Allocative inefficiency in the production of hospital services. Southern Economic Journal, 58(1), 240-248.

Greene, W. H. (2003). Econometric analysis. Pearson Education India.

Hamidi, S. (2016). Measuring efficiency of governmental hospitals in Palestine using stochastic frontier analysis. Cost Effectiveness and Resource Allocation, 14(1), 1-12.

Jondrow, J., Lovell, C. K., Materov, I. S., & Schmidt, P. (1982). On the estimation of technical inefficiency in the stochastic frontier production function model. Journal of econometrics, 19(2-3), 233-238.

Kumbhakar, S. C., & Lovell, C. K. (2003). Stochastic frontier analysis. Cambridge university press.

Lave, J. R., & Lave, L. B. (1984). Hospital cost functions. Annual Review of Public Health, 5(1), 193-213.

Meeusen, W., & van Den Broeck, J. (1977). Efficiency estimation from Cobb-Douglas production functions with composed error. International economic review, 18(2), 435-444.

MOH (2017). Statistical Review of Progress to Inform the Mid-Term Review of the Uganda Health Sector Development Plan 2015/2016-2019/2020. Kampala, UG: Ministry of Health.

Mujasi, P. N., & Kirigia, J. M. (2016). Productivity and efficiency changes in referral hospitals in Uganda: An application of Malmquist total productivity index.. Health Systems and Policy Research, 3(128), 1-12.

Mutter, R. L., Rosko, M. D., & Wong, H. S. (2008). Measuring hospital inefficiency: the effects of controlling for quality and patient burden of illness. Health Services Research, 43(6), 1992-2013.

Nabukeera, M. S. (2016). Challenges and barriers to the health service delivery system in Uganda. IOSR Journal of Nursing and Health Science, 5(2), 20-38.

Nannyonjo, J., & Okot, N. (2013). Decentralisation, local government capacity and efficiency of health service delivery in Uganda. Journal of African Development, 15(1), 125-158.

O'Donnell, C. J., & Nguyen, K. (2011). Review of efficiency measurement methodologies to inform hospital resource allocation decisions in NSW. An Evidence Check Rapid Review Brokered by the Sax Institute for the NSW Treasury.

Peacock, S., Chan, C., Mangolini, M., & Johansen, D. (2001). Techniques for measuring efficiency in health services. Productivity Commission: Staff Working Paper. Belconnen, ACT: Commonwealth of Australia.

Rodrı́guez-Álvarez, A., Fernández-Blanco, V., & Lovell, C. K. (2004). Allocative inefficiency and its cost:: The case of Spanish public hospitals. International Journal of Production Economics, 92(2), 99-111.

Uganda Statiscal abstract (2017/18); Uganda Health Accounts

Wei, Y., Yu, H., Geng, J., Wu, B., Guo, Z., He, L., & Chen, Y. (2018). Hospital efficiency and utilisation of high-technology medical equipment: A panel data analysis. Health policy and technology, 7(1), 65-72.

WHO. (2004). Developing Health Management Information Systems: A Practical Guide for Developing Countries. Geneva: World Health Organization.

Worthington, A. C. (2004). Frontier efficiency measurement in health care: a review of empirical techniques and selected applications. Medical care research and review, 61(2), 135-170.

Yawe, B. (2010). Hospital performance evaluation in Uganda: a super-efficiency data envelope analysis model. Zambia Social Science Journal, 1(1), 79-105.

Yawe, B. L. & Kavuma, S. N. (2008). Technical efficiency in the presence of desirable and undesirable outputs: a case study of selected district referral hospitals in Uganda. Journal of Health Policy and Development, 6 (1), 37-53.

Yawe, B. L. (2006). Technical efficiency and total factor productivity growth in Uganda’s district referral hospitals. Doctoral dissertation. University of Dar es Salaam.

Yong, K., & Harris, A. H. (1999). Efficiency of hospitals in Victoria under casemix funding: a stochastic frontier approach. Australia: Centre for Health Program Evaluation.

15 June, 2021
How to Cite
Ajanga, M. (2021). Allocative Inefficiency of General Hospitals in Poor Countries: A Case Study of Uganda. East African Journal of Interdisciplinary Studies, 3(1), 128-143.