An Alternative Subsidy: Improving Health Outcomes through Non-Monetary Costs

The objective of the proposed research is to compare an alternative type of subsidy, free distri- bution coupled with a non-monetary price, to monetary subsidies. The usual (monetary) price system allocates goods to those with the highest willingness to pay. However, the presence of labor market frictions and binding credit and savings constraints likely lowers consumers' willingness to pay relative to their willingness to pay in the absence of these constraints. In the presence of binding constraints, the price system will not necessarily allocate limited resources to those with the highest unconstrained willingness to pay. This di�erence between constrained willingness to pay and unconstrained willingness to pay would explain the steep drop-o� in demand for increasing monetary prices, but would not be expected to a�ect demand with respect to non-monetary prices.