The impact of incentives

What causes people to respond to incentives? From a simplistic view we may say that people just pick the option with the highest utility; everybody has a price, right? Financial incentives are often used to alter health related behaviours. In the United Kingdom for example, taxes are used to internalise the externalities of smoking, and a copayment is required for prescriptions. These incentives alter behaviours. In developing countries, however, the effects of demand side incentives are not well known.

There are a number of schemes worldwide that offer demand side incentives, however they have differing results. Often the incentive is financial, sometimes it may be in the form of another locally valuable commodity. In India, for example, it was found that offering lentils alongside immunisation camps significantly increased turnout. However the impact of such schemes may differ in different countries. In Rwanda 69% of mothers give birth in a public health facility, whereas in Nepal only 28% of mothers do. Both countries have a similar GDP per capita and offer similar demand side incentive schemes to mothers. So, why is there a difference?

There are a number of possible reasons. Firstly, mothers may not be aware of any scheme. They may also lack the information to know that giving birth with a professional will likely lead to better outcomes. In Rwanda traditional, untrained midwives are themselves offered an incentive to bring expectant mothers to public health facilities. Whereas in Nepal, a recent study found that knowledge of these incentives was greater among wealthier individuals, and only 26% of the overall population were aware of them at all. Secondly, and potentially more important are cultural factors. Female autonomy often plays a role; it is linked to maternal health, child health and nutrition, and child education among many other factors. Female autonomy is evidently unobservable, however econometricians do possess tools to measure it, such as latent variable modelling.

The impacts of interventions in health are hard to predict and cannot be understood without first examining other cultural and economic factors. Just because an incentive exists does not mean that people know about it or are able to access it if they do.

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