Markets in low-income countries often fail to reliably provide high-quality versions of goods. Both theoretical and empirical work has highlighted the importance of information frictions in the low-quality equilibrium. This project investigates information frictions in the antimalarials market, which features high quality uncertainty because of the presence of counterfeit products, lower-quality alternatives and a general lack of information on product and vendor quality. This project addresses four research questions: 1) how do information frictions influence demand for quality; 2) what are the welfare consequences of information frictions in this market, accounting for their effect onf prices; 3) what are the distributional consequences of reducing information frictions; and 4) how do information frictions influence the welfare effects and effectiveness of subsidies or quality certifications for high-quality antimalarials.
To answer these questions, the project combines a structural model with a randomised control trial (RCT) that provides drug quality information to consumers in Nigeria, working with local partner EHA Clinics. The market-level randomised intervention provides information on vendor-specific quality at baseline and offers free quality testing using a relatively cheap drug scanning device. The treatment effect will then be estimated on three outcomes: i) belief in the efficacy of antimalarials overall, ii) belief that an antimalarial sold at a local pharmacy is substandard, and iii) use of antimalarials. The structural model, incorporating treatment effect estimates from the RCT for validation, allows for counterfactual simulations of adoption choices and welfare under improved quality information. The model features both biased and noisy beliefs simultaneously, advancing existing structural approaches by using data on both beliefs about drug quality and true quality from test results.
This study will improve our understanding of the welfare effects of low-quality pharmaceuticals and the adoption of health technology in low-income countries. The study also speaks to two common policies to improve take-up of high-quality antimalarials, subsidies and quality regulation, by highlighting how information frictions impact the effectiveness of these policies. If information frictions make subsidies less effective, policymakers may need to increase the magnitude of the subsidy or implement simultaneous policies to improve knowledge. Furthermore, the intervention itself may be a candidate for governments to implement. As the costs and technological requirements of the intervention are modest, this intervention may appeal to governments with limited fiscal and institutional capabilities: it presumably requires less capacity to offer quality information than to provide high-quality healthcare. Beyond malaria, understanding how health product choices relate to quality beliefs and prices could be valuable to policy makers trying to maximise take-up for Covid-19 and malaria vaccines, as similar mechanisms will likely be relevant.
