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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? We present a model of technology adoption in which people learn about a technology's effectiveness by using it (or observing others using it) for some time, but people quit using it too early if they face higher-than-expected usage costs (e.g., side effects). The extent to which one-off subsidies increase experimentation, and thereby affect learning and long-run adoption, then depends on people's priors on these usage costs. One-off subsidies can also affect long-run adoption through reference-dependence: People might anchor around the subsidized price and be unwilling to pay more for the product later. We estimate these effects in a two-stage randomized field experiment in Kenya. We find that, for a new technology with a lower usage cost than the technology it replaces, short-run subsidies increase long-run adoption through experience and social learning effects. We find no evidence that people anchor around subsidized prices.

Suggested Citation

  • Pascaline Dupas, 2010. "Short-Run Subsidies and Long-Run Adoption of New Health Products: Evidence from a Field Experiment," NBER Working Papers 16298, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:16298
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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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