The present article studies a new organizational structure in which neighboring health districts in Brazil form a partnership to jointly supply costly specialized health care services. Each district partially funds the organization. Depending on the partnership contract, a free rider problem arises. A district has the incentive to withdraw from the partnership if it can still benefit from its services, especially when political pressures for competing expenditures arise. The main conclusion is that the partnership sustainability is strongly influenced by the punishment mechanisms to a defaulting member, the gains from joint provision of health services and the overall economic environment.
