Would You Charge 75 Cents To Save A Child?

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The New York Times has an extraordinary story today about getting mosquito nets to the poor. It’s billed as science section story, but it’s an instructive economic story too.

Mosquito nets treated with DDT or other insecticides are a key line of defense against malaria in poor countries. They cost, according to Reuben Kyama and Donald G. McNeil’s story is about $5 to $7 wholesale, and they can save countless lives in malarial regions. The story is about two approaches to getting these nets to the poor. One is just giving them away. The other is distributing them through a network of local entrepreneurs who will sell them at a minimal price–as low as $1 or 50 cents. The second approach, social marketing, is supposed to help distribute the nets widely and create an opportunity for local small businesses as well.

Guess which approach works better?

Sorry. That was a trick question. In blogs like this, it’s always the clever social engineering approach that works better. Well, in this case it doesn’t. Here’s the story’s comparison of the two approaches in one village:

Under social marketing, Dr. Olumese said, the “richest of the poor” had 38 percent coverage, while the “poorest of the poor” — like Maendeleo’s rice farmers — had only 15 percent. After the handouts, they were about equal. Deaths of children dropped 44 percent. It also turned out to be cheaper, Dr. Olumese said. With consultant fees, transportation, advertising and shipping, social marketing added about $10 to the cost of each net beyond the $5 to $7 that Danish or Japanese makers charged. But even with payments to volunteers, the added cost of free distribution was only about $1.25 per net.

Got that? The costs of the creating a “social marketing” program and selling the nets turn out to be a lot bigger than just giving them away for free. Sufficiently big to cost lives.

There’s a second economic point in the story, worth thinking about, too. The “social marketing” program subsidized the cost of the nets, and let the poor buy it for tiny sums, just about 75 cents. Almost free. The idea that charging a little bit is better than charging nothing is one you see thrown around a lot, like when people talk about “token” five dollar insurance co-payments to discourage un-necessary doctors’ visits. 75 cents for a mosquito net that can save a life, a few bucks for an insurance co-payment. Surely some costs are so low that anybody could afford them if they really needed to?

Or maybe not.

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