Information frictions, demand for quality, and welfare in the market for antimalarials

Malaria is extremely deadly: In 2019, 229 million cases worldwide caused 409,000 deaths; 23% of those deaths occurred in Nigeria. One key problem is the prevalence of substandard antimalarials: various studies find 11.8% (Beargie et al.) to 23% (WHO) of antimalarials sold do not have the correct active pharmaceutical ingredients percentage, typically meaning the pills are either counterfeits or were improperly stored. 35% of artemisinin-based combination therapies (ACTs) — the WHO’s recommended treatment for uncomplicated malaria — were found to be substandard in a six-country study in sub-Saharan Africa (Bate et al.). Estimates indicate “poor-quality antimalarials are responsible for 12,300 deaths and $892 million ($890-$893 million) in costs annually in Nigeria” (Beargie et al.). In addition to ACTs, consumers have access to many less effective substitutes, including less effective drugs such as chloroquine and drugs not intended for the treatment of malaria. While a quarter of Nigerians mention ACTs when asked about malaria treatments they would use, 17% mention chloroquine, and 20% cite over-the-counter painkillers (aspirin, paracetamol, etc.) (DHS). Why are less effective treatments commonly used? In addition to a somewhat lower price point, consumers cannot be certain whether a drug they purchase is substandard and likely have difficulty assessing the relative effectiveness of different treatment options. Improving the functioning of markets for antimalarials can help affordable and effective, high-quality drugs reach those in need. Beyond malaria, understanding how health product choices relate to perceptions of product quality could be valuable to policy makers trying to increase take-up of high-quality pharmaceuticals, such as Covid-19 vaccines: similar mechanisms will likely be at play, and counterfeit Covid-19 vaccines have been found in South Africa.

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 will investigate information frictions in the antimalarials market. This market features quality uncertainty because i) highly effective drugs may be counterfeits or degraded, ii) myriad lower-quality alternatives exist, including weaker drugs and traditional remedies, and iii) learning about product quality is difficult, e.g. because antimalarials may be used to treat non-malaria fevers.

The project asks four related questions about information frictions and the antimalarial market: how do information frictions influence demand for quality; what are the welfare consequences of information frictions, accounting for how beliefs about quality influence price, quality provision, and adoption in equilibrium; what are the distributional consequences of reducing information frictions; and how do information frictions influence the welfare effects and efficacy of common policies to increase uptake of high-quality antimalarials. To answer these questions, the project combines an RCT providing drug quality information (including free drug testing) to consumers with a structural model. The RCT allows for precise estimates of the effect of quality beliefs on demand for quality and evaluates a policy relevant intervention for improving uptake of high-quality antimalarials. The structural model, incorporating treatment effect estimates from the RCT, allows for counterfactual simulations of adoption choices and welfare under improved quality information. The model features both biased and noisy beliefs, advancing existing structural approaches, by using data on both beliefs about drug quality and true quality from test results. This award reflects NSF’s statutory mission and has been deemed worthy of support through evaluation using the Foundation’s intellectual merit and broader impacts review criteria.

Project details

Financing & Economics
Social Science

Sep 2021 — May 2023

$24,999

United States