This is the twelfth in our series of posts by students on the job market this year
Recent work has suggested that as many as one-third of antimalarial drugs in sub-Saharan Africa are of low-quality, a catch-all term ranging from effective counterfeit medicines to dangerous “fakes” (Nayyar et al., 2012). The persistence of low drug quality may be attributable to asymmetric information (Akerlof, 1970). Patients do not know their need for treatment, or the drug quality at the time of the purchase. In order to maximize profits, providers may then substitute cheaper, lower quality drugs. Bjorkman et al., (2012) find that fake drugs are particularly common in areas with low levels of customer knowledge about malaria transmission, where customers are potentially easier to deceive. However, the only intervention shown to reduce counterfeit drugs is the introduction of a high-quality competitor (Bjorkman et al., 2012; Bennett and Yin, 2014). Might increased customer information about purchases cause suppliers to improve their drug quality?
I address this question in my job market paper. I implement a randomized audit study in Uganda to measure how suppliers adjust price and quality if customers knew what disease the patient had (i.e., “diagnosis”) or knew the particular drug to buy. I contrast the response of drug quality with service quality, which is also low in developing countries (Das and Hammer, 2014). I find that price falls when customers present more information. Counter-intuitively, I find that both service and drug quality fall when the customer presents more information.
In honor of Labor Day here in the US, I want to talk about a recent nutrition paper by Emla Fitzsimons, Bansi Malde, Alice Mesnard and Marcos Vera-Hernandez. This paper, “Household Responses to Information on Child Nutrition,” is one with a twist – they look not only at nutrition outcomes, but they also try and figure out where these might be coming from – and hence also look at labor supply.