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Can Higher Prices Stimulate Product Use? Evidence from a Field Experiment in Zambia

Nava Ashraf (Harvard University), James N. Berry (Cornell University), Jesse M. Shapiro (University of Chicago)

American Economic Review
DOI: 10.1257/aer.100.5.2383 (Economics, Econometrics and Finance)
License: not stated (all rights reserved)

Abstract: The controversy over 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 evidence of economically important screening effects. By contrast, we find no consistent evidence of sunk-cost effects. (JEL C93, D12, I11, M31, O12)

Published on 01 Dec. 2010