Free Provision and Demand for health products: Evidence from follow-up of a randomized controlled trial of water treatment product in Bangladesh

Project Active since State and Tax

The main purpose of this study is to investigate whether providing health products for free (under full subsidies), affects users’ future demand for the health product. Knowing individuals’ demand for health products such as water treatment tablets is important to stakeholders involved in water demand management as well as for policy makers in developing countries. There is an existing policy debate on whether health products in developing countries should be provided at zero prices (Sachs, 2005), or on a cost-sharing basis between the state and consumers (Easterly 2006). The main argument against providing product for free is that it generates wastage by providing wrong incentives. Cost sharing advocates argue that allowing consumers to bear some cost of the good incentivises its proper usage and more importantly, screens out people who do not have any valuation for the product. One key element that has been missing from the debate is whether the estimation of demand is contaminated by free provision of goods via the formation of a sense of entitlement from previous free provision. This study builds on a recently implemented randomised control trial study where point-of-use (portable) water treatment products were provided free amongst a study population. We aim to investigate whether positive prices; and subsequently zero prices, act as arbitrary anchors, affecting users' willingness to pay for the same health product. We have designed an experiment which identifies the effect of free entitlement to water treatment tablets. If evidence is found of users’ future demand being affected by subsidies on health products, the resulting case for free provision will not be as strong. One can argue that measures to counteract the formation of these entitlements could be sufficient to increase uptakes when cost sharing measures are introduced. Further, state resources could become available for alternative healthcare uses/sectors. Moreover, future demand assessment exercises would benefit from the findings of our study as it explicitly addresses the issue of anchoring in willingness to pay (WTP).