Does higher Institutional Quality improve the Appropriateness of Healthcare Provision?

•Institutional quality affects the appropriateness of healthcare provision.•Grey areas of medicine, subject to doctor discretion, are more likely to be affected.•A standard deviation increase in institutional quality reduces C-sections by 10 pp. We study the effect of institutional quality on the appropriateness of healthcare provision in Italian hospitals. We focus on cesarean section rates for first-time mothers, which is a common indicator of appropriateness in healthcare and is vulnerable to providers’ opportunistic behaviors. To identify the causal effect of institutional quality we rely on an IV strategy based on historical instruments, exploiting the idea that current differences in institutional quality across regions have been shaped by different cultural and political histories. We find that a standard deviation increase in our indicator of institutional quality leads to a decrease of about 10 percentage points in cesarean section rates. Our results are robust to different measures of institutional quality and samples.