Adoption of Over-the-Counter Malaria Diagnostics in Africa: The Role of Subsidies, Beliefs, Externalities, and Competition

Plans for the wide-scale distribution and subsidy of artemisinin combination therapies (ACTs), an antimalarial treatment, pose two problems for public health planning. First, many people seeking malaria treatment do not have the disease. If ACT subsidies could be targeted toward those with malaria, the cost of subsidies could fall. Second, the inappropriate use of antimalarial drugs may contribute to the emergence of drug-resistant parasites. Rapid diagnostic tests (RDTs) for malaria could help with both problems, but drug shop owners may have few financial incentives to sell them, given profits from overtreatment for malaria. A model of the provision of RDTs by profit-maximizing drug shops shows that if all parties know the probability of having malaria and if there are no subsidies for drugs and no external costs to inappropriate treatment, both monopolistic and competitive drug shop owners will provide RDTs under the same circumstances that a social welfare maximizing planner would. However, since drugs will be subsidized, customers overestimate their likelihood of having malaria, and since there are external costs to the misuse of antimalarials, profit-maximizing drug shops will likely underprovide RDTs. We show that a subsidy for RDTs can increase provision and, under adequate competition, induce everyone to use RDTs optimally. The results also highlight the importance of educating customers about the true prevalence of malaria and promoting competition among drug providers.