Ordeal Mechanisms and Information in the Provision of Subsidized Health Goods in Developing Countries

The cost-effectiveness of policies providing subsidized health goods is often compromised by the fact that many individuals do not use the goods provided. However, charging even nominal prices has been shown to significantly dampen overall take-up and may screen out many who would have used a good if freely provided. Applying an ordeal mechanism to the distribution of subsidized health goods has been proposed as a way to balance the dual goals of improving targeting efficiency and maintaining take-up (i.e. screening out individuals who would not have used a good if directly provided to them while not screening out those who would). In this paper, we report the results of a randomized trial designed to test targeting efficiency in the distribution of a health good through an ordeal mechanism against free distribution. Because the functioning of an ordeal mechanism may depend crucially on perceptions of the benefits and cost of a good at different points in time, we also test how the ordeal mechanism performs with and without health training that emphasizes the benefit of the good, and how targeting efficiency differs according to short and medium term use. Our specific focus is on the provision of eyeglasses (an under utilized health good) to myopic primary school students in rural western China. We emphasize two findings. First, both with and without health training, the ordeal modestly improved targeting efficiency and reduced program costs compared to direct free distribution. Second, in the presence of health training, the ordeal mechanism screened out some individuals who in the short term would have used glasses if freely provided. This occurs because health training has a larger impact on short-term use when glasses are freely provided. The ordeal mechanism selects out individuals whose short-term use decision is most responsive to health training. In the medium term usage rates between these individuals and others converge as individuals learn about costs.