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

Abstract

Short-run subsidies for health products are common in poor countries. How do they affect long-run adoption? A common fear among development practitioners is that one-off subsidies may negatively affect long-run adoption through reference-dependence: People might anchor around the subsidized price and be unwilling to pay more for the product later. But for experience goods, one-off subsidies could also boost long-run adoption through learning. This paper uses data from a two-stage randomized pricing experiment in Kenya to estimate the relative importance of these effects for a new, improved antimalarial bed net. Reduced form estimates show that a one-time subsidy has a positive impact on willingness to pay a year later inherit. To separately identify the learning and anchoring effects, we estimate a parsimonious experience-good model. Estimation results show a large, positive learning effect but no anchoring. We black then discuss the types of products and the contexts inherit for which these results may apply.

Targeting health subsidies through a nonprice mechanism: A randomized controlled trial in Kenya

“…Multiple studies have found that demand for preventive health goods is highly sensitive to price (1–4). For mosquito nets, usage appears as high among recipients who get them only when they are free or nearly free as among those able to pay a price of USD 1 or more (5, 2, 6–8). However, in the case of water treatment solution, Ashraf, Berry, and Shapiro (9) argue that households with lower willingness to pay for the product when a marketer comes to their doorstep are less likely to use it for its intended health purpose, and more likely to use it for other purposes, such as washing clothes or cleaning toilets.…”

Governance and the effectiveness of public health subsidies: Evidence from Ghana, Kenya and Uganda

“…Willingness to pay for bednets is modest in rural Africa: in 2007, only 25% of households in rural Kenya were willing to pay more than $2 for a $7-bednet (Dupas, 2014). Similar levels have been seen in Uganda (Hoffmann 2009) and Madagascar (Comfort and Krezanoski, 2017).…”

“…Even though there is little scope to demand large bribes in a setting with low willingness to pay, there remains ample room for health workers to extort small amounts of money from the ineligible. In other contexts, public employees demand bribes even at a low level – for example, a contemporaneous study by Foltz and Opoku-Agyemang (2014) finds that policemen in Ghana allow only 19% of trucks to pass roadblocks without taking a bribe, and the most frequent bribe amount paid is 1 Ghanaian Cedi (around 60 US cents) – an amount that 75% of rural Kenyan households are willing to pay for an ITN (Dupas, 2014). In fact, based on the demand curve estimated in Dupas (2014), the profit-maximizing price a monopolist health worker would want to charge ineligibles in Kenya is $1.6 (in 2009 USD), a price 34% of households are willing to pay.…”

“…In other contexts, public employees demand bribes even at a low level – for example, a contemporaneous study by Foltz and Opoku-Agyemang (2014) finds that policemen in Ghana allow only 19% of trucks to pass roadblocks without taking a bribe, and the most frequent bribe amount paid is 1 Ghanaian Cedi (around 60 US cents) – an amount that 75% of rural Kenyan households are willing to pay for an ITN (Dupas, 2014). In fact, based on the demand curve estimated in Dupas (2014), the profit-maximizing price a monopolist health worker would want to charge ineligibles in Kenya is $1.6 (in 2009 USD), a price 34% of households are willing to pay. They could also extort the eligible: based on the demand among pregnant women observed in Cohen and Dupas (2010), a health worker would maximize profit from the eligible by charging them 30 US cents (in 2009 USD).…”

“…A consideration in interpreting our findings is that the willingness to pay for ITNs in rural Africa is modest: in 2007, only 25% of households in rural Kenya were willing to pay more than $2 for a $7-bednet (Dupas, 2014). Even though there is little scope to demand large bribes in this setting, there remains ample room for health workers to extort small amounts of money from the ineligible.…”