Working Paper: NBER ID: w16298
Authors: 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.
Keywords: subsidies; health products; technology adoption; field experiment; social learning
JEL Codes: C93; D12; H42; O33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| shortrun subsidies (H23) | longrun adoption of LLINs (D15) |
| shortrun subsidies (H23) | experimentation with LLINs (C90) |
| experimentation with LLINs (C90) | understanding of effectiveness and utility (C90) |
| understanding of effectiveness and utility (C90) | willingness to pay for LLINs (P22) |
| density of neighbors receiving subsidies (R23) | likelihood of purchasing LLINs (G52) |
| shortrun subsidies (H23) | knowledge about the product (L15) |
| shortrun subsidies (H23) | entitlement effects (H55) |