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

47 Pages Posted: 24 Aug 2010 Last revised: 15 Jun 2014

See all articles by Pascaline Dupas

Pascaline Dupas

University of California, Los Angeles (UCLA) - Department of Economics

Date Written: August 2010

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

Dupas, Pascaline, Short-Run Subsidies and Long-Run Adoption of New Health Products: Evidence from a Field Experiment (August 2010). NBER Working Paper No. w16298. Available at SSRN: https://ssrn.com/abstract=1662292

Pascaline Dupas (Contact Author)

University of California, Los Angeles (UCLA) - Department of Economics ( email )

Box 951477
Los Angeles, CA 90095-1477
United States

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