Center for Effective Global Action

Short-run, targeted subsidies for health products are common in poor countries. How do they affect long-run adoption? Standard economic theory predicts that they may increase long-run adoption through experience and social learning effects. Those effects will be muted, however, if subsidized products are unused or misused. Subsidies have also been argued to generate “entitlement effects”: people may refuse to pay for products that were once free. A field experiment was designed to estimate the relative importance of these competing effects. We find that, for a health product with high private returns (an antimalarial bednet), positive experience and social learning effects largely dominate.