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.
Olyset bed net purchase, olyset bed net usage.
In Phase 1, data shows the initial adoption of the Olyset bed net is very price sensitive. Households were much more likely to redeem their voucher and buy the net if they received a higher subsidy. Evidence suggests some spillover effects: households with neighbours who received high subsidies were more likely to redeem their voucher. In Phase 2, the evidence shows a small, but positive, effect of the high subsidy voucher for purchasing a Olyset bed net at the set price. However, it is notable that the take-up rate for the bed nets at the set price in phase 2 is not significantly lower for the high subsidy group compared to the low subsidy group. This could mean that the high subsidy group's willingness to pay has increased - especially as the bed net they purchase in Phase 2 is likely to be a second one (whereas for those in the low subsidy group the bed net purchased in Phase 2 is likely to be their first).