Can Higher Prices Stimulate Product Use? Evidence from a Field Experiment in Zambia
The controversy over whether and how much to charge for health products in the developing world rests, in part, on whether higher prices can increase use, either by targeting distribution to high-use households (a screening effect), or by stimulating use psychologically through a sunk-cost effect. We develop a methodology for separating these two effects. We implement the methodology in a field experiment in Zambia using door-to-door marketing of a home water purification solution. We find that higher prices screen out those who use the product less. By contrast, we find no consistent evidence of sunk-cost effects.
We are grateful to Gary Becker, Stefano DellaVigna, Dave Donaldson, Erik Eyster, Matthew Gentzkow, Jerry Green, Ali Hortaçsu, Emir Kamenica, Dean Karlan, Larry Katz, Michael Kremer, Stephen Leider, Steve Levitt, John List, Kevin M. Murphy, Sharon Oster, Amil Petrin, Matt Rabin, Mark Rosenzweig, Peter Rossi, Al Roth, Philipp Schnabl, Andrei Shleifer, Richard Thaler, Jean Tirole, Tom Wilkening, Jonathan Zinman, and seminar participants at the Harvard Business School, the University of Chicago, the Massachusetts Institute of Technology, the London School of Economics, the Paris-Jourdan Sciences Economiques, the Institut d'Economie Industrielle, Toulouse, the UQAM/CIPREE Conference on Development Economics, Yale University, Washington University in St. Louis, and Princeton University for helpful comments and Rob Quick at the Centers for Disease Control for his guidance on the technical aspects of water testing and treatment. We wish to thank Steve Chapman, Research Director of Population Services International D.C., for his support, and the Society for Family Health in Zambia for coordinating the fieldwork, particularly Richard Harrison and T. Kusanthan, as well as Cynde Robinson, Esnea Mlewa, Muza Mupotola, Nicholas Shiliya, Brian McKenna, and Sheena Carey de Beauvoir. Marie-Hélène Cloutier provided outstanding assistance with our in-depth interviews on alternative uses of Clorin, and Kelsey Jack provided numerous insights based on her field experience. We gratefully acknowledge financial support from the Division of Faculty Research and Development at Harvard Business School. E-mail: firstname.lastname@example.org, email@example.com, firstname.lastname@example.org. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
Nava Ashraf & James Berry & Jesse M. Shapiro, 2010. "Can Higher Prices Stimulate Product Use? Evidence from a Field Experiment in Zambia," American Economic Review, American Economic Association, vol. 100(5), pages 2383-2413, December. citation courtesy of