UC Berkeley

Short-term subsidies are a commonly used policy lever in low- and middle-income countries to increase the immediate adoption of single use health products. However, reduced prices could be counterproductive towards demand for products requiring repeat purchase, inducing anchoring effects in which recipients reference the initial discounted price, undervaluing products on future offer. Alternatively, short-term subsidies might allow for positive learning to dominate, leading to higher future valuation, purchase and use. In this experiment, subsidy offers were randomized for a novel potable water delivery service to 526 households in rural Bihar to examine whether discounts led to price anchoring or positive learning. Treatment households received subsidized delivery offers for 30 days, while controls were offered market price for the same period. One month after subsidies expired, treatment households were 13.1 percentage points more likely than controls to purchase water delivery at the market price (95% CI: 6.3 to 19.9). Furthermore, treatment households purchased 86.9% more liters of water per week than controls (95% CI: 25.9 to 148.0). Results clearly show that, when paired with social marketing and weekly reminders, short-term subsidies can positively influence both the probability of future demand and increase the total quantity of water purchased.