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.

Keywords: Technology adoption; anchoring; experimentation; malaria; prevention; social learning.

Figure 1

Effects of phase 1 price subsidy on Phase 1 adoption. Notes: Data from 1120 households (Panels A and C), 479 households (Panel B, hollow circles), 273 households (Panel B, solid circles). The size of the circles reflects the relative size of the sample at each price point. The lines are quadratic fits (Panels A and C) or linear fits (panel B). The 1-yr follow-up was conducted in only four of the six study areas. Usage is self-reported (see Table II for results on observed usage). The exchange rate at the time of the study was around Ksh 65 to US$1.

Figure 2

Effects of Phase 1 price subsidy on Phase 2 adoption. Notes: Data from 599 households in the four areas sampled for Phase 2. Panel A reproduces Panel A of Figure 1 for the subsample included in Phase 2. The size of the circles reflects the relative size of the sample at each price point. The lines are quadratic fits.