Research Highlights
A Strategy for Delivering Malaria Drugs to the Neediest Populations
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The purchase subsidy ... reduces the value to the retailer of carrying unsold units into the next period, so the retailer prices more aggressively to clear out existing inventory.
As many nongovernmental aid organizations and philanthropists have discovered, good intentions are almost the smallest part of the equation when it comes to delivering aid to the developing world. But a new study by NYU Professor Wenqiang Xiao provides evidence that can make the medication supply chain more efficient at reaching the neediest patients.
In “Subsidizing the Distribution Channel: Donor Funding to Improve the Availability of Malaria Drugs,” Professor Xiao, an associate professor of information, operations, and management sciences, and co-author Terry Taylor, associate professor at the Haas School of Business at UC Berkeley, studied the private distribution channel through which poor, non-urban populations generally obtain malaria drugs.
Substantial donor funds are available for subsidies that encourage the channel to improve access to the drugs. To guide donors’ funding strategy, the authors designed a study that would show whether subsidizing the retailers’ purchase of the medications (versus their sales) would be the best way to encourage them to stock and sell the drug at prices affordable to the poor.
The authors found that for drugs with a long shelf life – such as ACT, the currently recommended malaria drug – it was far more effective for donors to subsidize the retailers’ purchase rather than their sales. Professor Xiao explains, “The purchase subsidy, by reducing the cost of acquiring units in the subsequent period, reduces the value to the retailer of carrying unsold units into the next period, so the retailer prices more aggressively to clear out existing inventory.”
For drugs with a short shelf life, in contrast, a sales subsidy in the form of discount vouchers distributed to patients, was a greater incentive for retailers to stock the drug.
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Wenqiang Xiao is an Associate Professor of Information, Operations and Management Sciences.
In “Subsidizing the Distribution Channel: Donor Funding to Improve the Availability of Malaria Drugs,” Professor Xiao, an associate professor of information, operations, and management sciences, and co-author Terry Taylor, associate professor at the Haas School of Business at UC Berkeley, studied the private distribution channel through which poor, non-urban populations generally obtain malaria drugs.
Substantial donor funds are available for subsidies that encourage the channel to improve access to the drugs. To guide donors’ funding strategy, the authors designed a study that would show whether subsidizing the retailers’ purchase of the medications (versus their sales) would be the best way to encourage them to stock and sell the drug at prices affordable to the poor.
The authors found that for drugs with a long shelf life – such as ACT, the currently recommended malaria drug – it was far more effective for donors to subsidize the retailers’ purchase rather than their sales. Professor Xiao explains, “The purchase subsidy, by reducing the cost of acquiring units in the subsequent period, reduces the value to the retailer of carrying unsold units into the next period, so the retailer prices more aggressively to clear out existing inventory.”
For drugs with a short shelf life, in contrast, a sales subsidy in the form of discount vouchers distributed to patients, was a greater incentive for retailers to stock the drug.
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Wenqiang Xiao is an Associate Professor of Information, Operations and Management Sciences.