Can Higher Prices Stimulate Product Use? Evidence from a Field Experiment in Zambia by Nava Ashraf, James Berry, Jesse Shapiro, and Jessica Leino :: NEUDC 2007 Papers :: Northeast Universities Development Consortium Conference :: Center for International

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. We test this hypothesis in a field experiment in Zambia using door-to-door marketing of a home water purification solution. Our methodology separates the screening effect of prices (charging more changes the mix of buyers) from the psychological effect of prices (charging more stimulates greater use for a given buyer). We find that higher prices screen out those who use the product less. The amount paid does not have a psychological effect on use, but there is some evidence that the act of paying increases use. We use our data to estimate an economic model of product use, simulate counterfactuals, and develop tentative implications for pricing policy. JEL classification: C93, D12, L11, L31