Do Public Health Interventions Crowd Out Private HealthInvestments? Malaria Control Policies in Eritrea∗Pedro Carneiro†Andrea Locatelli‡Tewolde Ghebremeskel§Joseph Keating¶October 14, 2011AbstractIt is often argued that introducing Indoor Residual Spraying (IRS) in areas with high coverage ofmosquito b ed nets may discourage net ownership and use. We analyze new data from a randomizedcontrol trial conducted in Eritrea which shows the opposite: IRS encouraged net acquisition anduse. We show that the introduction of IRS may have made the problem of malaria more salient intreatment villages, leading to a change in beliefs about its importance, and to an increase in privatehealth investments.JEL co des: D12, D83, H42, I12.Keywords: Malaria, Bed nets, Indoor residual spray, Information, Beliefs, Behavior.∗We would like to thank officials at the Eritrean Ministry of Health and the National Malaria Control Program, and thedata collection team at the Orotta School of Medicine in Asmara. Without them this research would not have been possible.This research was funded by a World Bank grant (as part of the HAMSET II project) through the Project ManagementUnit of the Eritrea Ministry of Health. We thank Pascaline Dupas, Costas Meghir, Petra Todd, and seminar participantsat UCL, EDePo at IFS, the AEL Conference 2011, the 10th Arnoldshain Seminar, the World Bank and PSE for helpfulcomments. Carneiro gratefully acknowledges the financial support from the Economic and Social Research Council forthe ESRC Centre for Microdata Methods and Practice (grant reference RES-589-28-0001), the support of the EuropeanResearch Council through ERC-2009-StG-240910-ROMETA and Orazio Attanasio’s ERC-2009 Advanced Grant 249612“Exiting Long Run Poverty: The Determinants of Asset Accumulation in Developing Countries”, and the hospitality of theWorld Bank Research Group.†University College London, Institute for Fiscal Studies, Centre for Microdata Methods and Practice, and GeorgetownUniversity‡University College London, email: [email protected]§National Malaria Control Program, P.O. Box 212, Ministry of Health, Asmara, Eritrea¶Tulane University, School of Public Health and Tropical Medicine, Department of Global Health Systems and Devel-opment11 IntroductionThe success of public health programs is limited by (among other things) the extent to which theycrowd out private health investments. In the standard model, the amount of crowding out depends onthe degree of substitutability between private and public investments. This is a central concern whendiscussing malaria control programs, such as indoor residual spraying (IRS), which consists in sprayingthe interior walls of dwellings with insecticide to kill resting mosquitoes. The introduction of IRS couldhave a negative impact on the acceptability of insecticide treated mosquito bed nets (ITN), possiblyinducing individuals to stop using them. This possible unintended consequence should be explored inareas where IRS is implemented together with other malaria control strategies, as part of an integratedvector control program.The implications of the standard model can be reversed if individuals have imperfect informationand face substantial uncertainty about the effectiveness of health investments. In this paper we presentexperimental evidence that an IRS campaign in Eritrea led to increases in ITN ownership and use. Ouranalysis suggests that the introduction of IRS may have made the problem of malaria more salient intreatment villages, leading to a change in beliefs about the importance of the disease in these areas, whichresulted in an increase in private health investments.A large body of literature debates the extent to which a variety of public programs discourages (orcrowds-out) private investments in the same goods or services provided by the public sector. Threeexamples among many are Peltzman (1973), who discusses the case of higher education in the US, Cutlerand Gruber (1996), who study health insurance in the US, and Das et al. (2011), who analyze educationsubsidies in Zambia and India. However, it is difficult to find studies emphasizing crowding-out for healthprograms in developing countries, perhaps because of lack of data. A recent survey of the literature barelymentions this issue (Dupas (2011)).The standard model generally assumes that there is substitutability between private and public expen-ditures, say, in health. In addition, individuals have adequate information to estimate expected returnsto their health investments. In such a setting it follows that crowd-out is likely to be important, i.e.,private investments decline in response to increases in public investments.There is however increasing evidence that decision making by the poor is greatly affected by lack ofinformation (e.g., Bertrand et al. (2006), Banerjee and Duflo (2011) and Dupas (2011)). This means thathealth programs have the potential to both deliver health services and cause changes in beliefs about thereturns to health investments in the populations they serve, even reversing potential crowding out effects.We argue that this is the case with IRS in Eritrea, and we present new evidence of the importance ofthis phenomenon, which is generally ignored.We present a simple model where individuals choose whether or not to sleep under an ITN, giventheir subjective beliefs about the probability of being infected with malaria. Keeping beliefs constant, theintroduction of IRS decreases the expected benefits of ITN use, if we assume that the two technologiesare substitutes. However, individuals have imperfect information, so their subjective expectations aresusceptible to change as well. Faced with an IRS government program in their village, if individualsbelieve that the government has more precise information about the risk of malaria infection than theydo, they may be led to revise upwards their subjective expectations about the risk of infection. Therefore,expected returns to ITN use may go up as a result.2The data used in our study comes from an experimental evaluation of the impact of IRS in themost malarious region of Eritrea (Gash Barka), organized by the Government of Eritrea. Fifty-eight(58) villages were randomly assigned to treatment and 58 villages were randomly assigned to control.Before the start of the malaria season (June–July, 2009), households in treatment villages were visitedby government workers carrying IRS equipment and were