Can Higher Prices Stimulate Product Use? Evidence from a Field Experiment in Zambia

Abstract

The controversy over how much to charge for health products in the developing world rests, in part, on whether higher prices can increase use, either by targeting distribution to high-use households (a screening effect), or by stimulating use psychologically through a sunk-cost effect. We develop a methodology for separating these two effects. We implement the methodology in a field experiment in Zambia using door-to-door marketing of a home water purification solution. We find evidence of economically important screening effects. By contrast, we find no consistent evidence of sunk-cost effects. (JEL C93, D12, I11, M31, O12)

Short-Run Subsidies and Long-Run Adoption of New Health Products: Evidence From a Field Experiment

“…Adoption of Olyset nets is also much higher overall than that observed by Ashraf, Berry, and Shapiro (2010) concerning water disinfectant: they found that increasing the price from 300 to 800 Zambian Kwacha (which is equivalent to going from just Ksh 6 to Ksh 17) decreases the purchase rate from 80% to 50%, but leaves the adoption rate (purchase × usage) unaffected, at roughly 30%.…”

“…This may have reduced the potential for anchoring. From a policy standpoint, indicating the non-subsidized price on a voucher or product is relatively costless and quite common (this was the case in the Ashraf, Berry, and Shapiro (2010) experiment with chlorine); therefore, estimating the overall effect of subsidies in the presence of full information about the non-subsidized price is of direct policy interest. That said, it would be useful for future research to test the extent to which anchoring effects are at play in the absence of such information.…”

“… 2 Recent experiments conducted in urban Zambia and rural Kenya find no evidence for the psychological sunk cost effect, however (Ashraf, Berry, and Shapiro (2010), Cohen and Dupas (2010)). …”

“…We make the simplification of equating acquisition to usage, since it is what we observe empirically (remember Figure 2, panel B). For products that are more costly to use than anticipated (e.g., people only discover how badly chlorinated water tastes once they have tried it once), it is possible that the initial learning l 1 is negative—that is, the mean prior decreases right after acquisition, and some households may, after that, not find it worthwhile to use the product (as found in Ashraf, Berry, and Shapiro (2010)). In that case, they would not receive the private signal r 1 h and their period 2 decision would depend on their downward-revised prior on quality, the distribution $𝒩false(\mu +l_1,s_1^{2}false)$.…”

What Impedes Efficient Adoption of Products? Evidence from Randomized Sales Offers for Fuel-Efficient Cookstoves in Uganda

“…Examples include latrines (Gertler et al 2015;Guiteras, Levinsohn, and Mobarak 2015), point-ofuse water treatment technologies (Albert, Luoto, and Levine 2010;Ashraf, Berry, and Shapiro 2010;Kremer et al 2009), insecticide-treated bed nets (Cohen and Dupas 2010;Dupas 2009;Tarozzi et al 2014), hand washing with soap (Halder et al 2010;Luby et al 2011;Meredith et al 2013), vaccines (Clemens and Jodar 2005;Cropper et al 2004), deworming (Kremer and Miguel 2007;Meredith et al 2013), and micronutrient fortification (Dewey and Adu--Afarwuah 2008;Meredith et al 2013). …”