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

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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.

Original languageEnglish (US)
Pages (from-to)197-228
Number of pages32
JournalEconometrica
Volume82
Issue number1
DOIs
StatePublished - Jan 2014
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Keywords

  • Anchoring
  • Experimentation
  • Malaria
  • Prevention
  • Social learning
  • Technology adoption

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