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Estimating the Impact of Means-tested Subsidies under Treatment Externalities with Application to Anti-Malarial Bednets

  • Debopam Bhattacharya
  • Pascaline Dupas
  • Shin Kanaya

Regular use of effective health-products such as insecticide-treated mosquito nets (ITN) by a household benefits its neighbors by (a) reducing chances of infection and (b) raising awareness about product-effectiveness, thereby increasing product-use.� Due to their potential social benefits and high purchase price, causing free-riding and sub-optimal private procurement, such products may be subsidized in developing countries through means-testing.� Owing to associated spillover effects, cost-benefit analysis of such subsidies requires modelling behavioral responses of both the subsidized household and its neighbors.� Using experimental data from Kenya where subsidies were randomized, coupled with GPS-based location information, we show how to estimate aggregate ITN use resulting from means-tested subsidies in the presence of such spatial spillovers.� Accounting for spillovers introduces infinite-dimensional estimated regressors corresponding to continuously distributed location coordinates and makes the inference problem novel.� We show that even if individual ITN use unambiguously increases with increasing incidence of subsidy in the neighborhood, ignoring spillovers may over- or under-predict overall ITN use resulting from a specific targeting rule, depending on the resulting aggregate incidence of subsidy.� Applying our method to othe Kenyan data, we find that (i) individual ITN use rises with neighborhood subsidy-rates, (ii) under means-testing, predicted ITN use is a convex increasing function of the subsidy incidence and (iii) ignoring spillovers implies a nearly-linear inceasing relationship leading to over-estimation of ITN use at lower and under-estimation at higher subsidy rates.

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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 646.

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Date of creation: 18 Feb 2013
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Handle: RePEc:oxf:wpaper:646
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