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

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  • Pascaline Dupas

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.

Suggested Citation

  • Pascaline Dupas, 2014. "Short‐Run Subsidies and Long‐Run Adoption of New Health Products: Evidence From a Field Experiment," Econometrica, Econometric Society, vol. 82(1), pages 197-228, January.
  • Handle: RePEc:wly:emetrp:v:82:y:2014:i:1:p:197-228
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    File URL: http://hdl.handle.net/10.3982/ECTA9508
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    More about this item

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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