The Effects of Healthcare Choice on Health Outcomes: Evidence from Tanzania∗

Self-selection into healthcare options on the basis of severity likely biases estimates of the effects of healthcare choice on health outcomes. Using an instrumental variables strategy which exploits exogenous variation in the cost of formal-sector care, we show that using such care to treat acute sickness decreases the incidence of fever and malaria in young children in Tanzania. We find, compared to the instrumental variable estimates, that ordinary least squares estimates significantly understate the effects of formal-sector healthcare use on health outcomes. Greater access to medicines at formal-sector health facilities does not appear to be the primary mechanism for this effect; however, we do find that formal-sector care substantially reduces delays in antimalarial treatment. We also show that mothers who choose formal-sector care for their sick children are as a result better informed about common diseases and their transmission. ∗We thank Abhijit Banerjee, Prashant Bharadwaj, Michael Boozer, Joe Doyle, T. Paul Schultz, Tavneet Suri, Chris Udry and participants of the Yale Development Lunch Seminar and the 2010 Pacific Development Conference for helpful comments and suggestions. All remaining errors are our own. †Yale University, School of Public Health, Department of Health Policy and Administration. e-mail: [email protected]. web: http://www.yale.edu/adhvaryu. ‡Yale University, Department of Economics. e-mail: [email protected].