Another Example Of The Difference Between Value And Price: Free Mosquito Nets Are More Valued

from the economics-at-its-finest dept

We've pointed out time and time again how price and value are not the same thing. They may be related, but value tends to explain the demand curve, whereas price is determined by the intersection of supply and demand. To think about it logically, we buy stuff all the time because we value what we buy more than the money we're paying for it (the price). That's why the economic transaction happens. Or, to put it another way, you'll pay the price for something if it's lower than what you value it at, but that doesn't automatically change the value of it to the price. Now, there are some reports that suggest that the price, acting as a signal, can impact perceived value, but that appears to be limited only to a few specific situations.

We saw another example of the difference between price and value in a recent episode of Planet Money, which involved a discussion with the authors of the book Poor Economics, about their very data driven look at various economic questions. An early part of the discussion looked at the question of whether or not people in poor countries don't value mosquito nets when they get them for free. Apparently some economists have argued that you have to make poor people pay for their mosquito nets or they won't "value" them. Tragically, it seems that even some economists don't recognize the difference between price and value.

Thankfully, the folks who wrote this book went out and did real research, and the data shows that people in poor countries actually seem to value the free mosquito nets even more than when they have to pay for them. That is, people who received free mosquito nets seemed even more likely to use them than those that were paid for. I'm a sucker for data driven economics, so it's always nice to see stories like this one.


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  1.  
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    fogbugzd (profile), Jun 14th, 2011 @ 10:40pm

    It is easy to substitute politics in place of economics. Good economics should not be driven by politics, but it often is. Some people who call themselves economists seem to forget their basic economics training once they get caught up in political economics.

     

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  2.  
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    Anonymous Coward, Jun 14th, 2011 @ 11:28pm

    I'm hard pressed to think of anyone who enjoys or doesn't mind being under mosquito attack.

    If something is given to you for free, especially something you need or cannot afford, I would think gratitude comes into play, and one would regard it as a gift. Sentimentality, remembrance, emotion, whatever is received is imbued with those things and adds to its value.

     

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  3.  
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    Anonymous Coward, Jun 14th, 2011 @ 11:37pm

    You Only Get What You Pay For

    The statement, "You only get what you pay for." is the standard comment from somebody who is confused about the difference between price and value. One way to deal with it is to say to them, "Well, you should stop breathing then. You have not paid for that air." The ensuing discussion is a wonderful opportunity to enlighten them about the difference between price and value.

     

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  4.  
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    Greevar (profile), Jun 15th, 2011 @ 12:01am

    Re: You Only Get What You Pay For

    I'm not sure you quite understand that statement. It implies that you shouldn't expect much of something you didn't pay a high price for. Most times the phrase refers to a product that fails or breaks in the course of regular usage. It implies you must pay a quality price for a quality item. If you go the cheap route, don't complain if it turns out to be junk. The implied message is, nevertheless, faulty. It happens to assume that when you pay a high price, quality naturally follows. Well, we all know you don't always get what you expect for the price you pay.

     

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  5.  
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    Mr Big Content, Jun 15th, 2011 @ 12:58am

    This Is Why You Canít Compete With Free

    How are mosquito-net vendors supposed to make a profit like this?

    They came for our mosquito nets, but I said nothing.

    Then they came for me, but it was too lateóI was already covered in mosquito bites.

     

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  6.  
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    Rekrul, Jun 15th, 2011 @ 1:04am

    I have tons of stuff that I've bought that I don't use. Why? It turned out to be junk, or I didn't have as much use for it as I thought I would. On the other hand, I've found a bunch of stuff during bulk trash pickup that use all the time. Box fans for my windows, the swivel chair I'm sitting in, the sound card in my system (soon to be joined by a salvaged graphics card), this keyboard, an electric bug zapper racquet, a nice pair of powered speakers with sub-woofer, a couple of bicycles, a lawn mower, etc

    Most of the Windows games I own were bought either used or at a local closeout store for less than $10 each.

    On the other hand, sometimes you DO get what you pay for. A while back I bought a container of assorted plastic zip ties at a local Dollar store. Unlike the real thing, they weren't made out of nylon. Where the real ones are practically indestructible, these break easily. In fact, I snapped one the first time I tried to pull it tight around a small bundle of cords.

     

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  7.  
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    Chargone (profile), Jun 15th, 2011 @ 2:47am

    Re:

    'course, a lot of basic economics training has been wonky for decades or more too.

     

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  8.  
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    Shawn (profile), Jun 15th, 2011 @ 5:40am

    Re: Re: You Only Get What You Pay For

    "If you go the cheap route, don't complain if it turns out to be junk."

    Quite the opposite. All FLOSS projects want your complaints. They call them bug reports and they're used to improve the quality of the software.

    Those that tell you, "You only get what you pay for," are trying to sell you their junk at absurdly-marked-up profits. Don't believe them.

     

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  9.  
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    That Anonymous Coward, Jun 15th, 2011 @ 6:42am

    There is also a difference in the societies and how they view things.

    In America "kids" have a sense of entitlement and have to have "the jeans" that make them cool. A homeless person cares not what the label says, but is grateful for jeans to wear. We are bombarded with messages of you need this and it has to be expensive, so we look down on anything with a low cost, and then we assume everyone everywhere is just like us in this manner.

    There was a story on Boingboing about a new Meningitis vaccine that was only $0.50 a dose and works better than the $120 a dose version being sold by others.
    http://www.boingboing.net/2011/06/14/in-africa-a-50-cent.html

    Do you think the people are they are getting a 50 cent version of the item, that works better, or the 120 dollar version? I think the concern would and should actually be I'd want the 50 cent version because its better.

     

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  10.  
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    Anonymous Coward, Jun 15th, 2011 @ 7:18am

    Re:

    But the $120 one should be better!

    Look at it's price compared to the 50 cent! Pfft, that's a no brainer.

    Now, if you'll excuse me, I'll go back to my brainwashed consumer activities.

     

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  11.  
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    Anonymous Coward, Jun 15th, 2011 @ 7:23am

    Re:

    I agree. And there are so many examples...like buying an expensive bottle of weed killer or an inexpensive container of salt. Both do the same thing. Expensive and not fun ant killer or less expensive gasoline which is much more fun when you add a pack of matches.

     

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  12.  
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    Anonymous Coward, Jun 15th, 2011 @ 7:27am

    If there was an endless supply of nets, if the population in general felt that their mosquito nets would automatically be replaced if they damaged or lost them, they would automatically value the individual net less. It is given.

    The mistake you are making is confusing the value for mosquito nets as a whole, as opposed to mosquito nets as an individual item. You cannot take the value of something as a whole and expect that value also to apply to the way individual people treat individual items.

    I value disposible lighters more than a pack of matches. Both achieve the same result (lights my smoke), but one of them I pay for and one of them is a gimmie. I know exactly how much I value paper matches (very low), unless I don't have matches or a lighter, than I value them highly.

    Value means many things at many levels, you cannot apply one value to another circumstance!

     

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  13.  
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    Bengie, Jun 15th, 2011 @ 7:34am

    Re: Re: You Only Get What You Pay For

    What about when a rich person purchases something for the sole reason to have something that is expensive and gives them an epeen?

    You're not getting quality or quantity, just expensive.

     

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  14.  
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    Killer_Tofu (profile), Jun 15th, 2011 @ 7:39am

    Copyright maximalists

    I'm a sucker for data driven economics, so it's always nice to see stories like this one.

    And upon hearing that, the copyright maximalists brought out their hard data. With actual supporting facts. And non drastically skewed survey results. And honest reasoning. And they stopped conflating terms that had no relation. And they stopped crying about child porn and terrorism. And ... oh wait ..

     

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  15.  
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    Greevar (profile), Jun 15th, 2011 @ 8:35am

    Re: Re: Re: You Only Get What You Pay For

    You misunderstand me. I'm not saying that statement is true, but it is what is implied by the phrase, "You get what you pay for."

    I'm in total agreement with you, price is no indicator of quality as some would assume.

     

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  16.  
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    Greevar (profile), Jun 15th, 2011 @ 8:36am

    Re: Re: Re: You Only Get What You Pay For

    I'm not supporting the mindset, I'm just explaining it.

     

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  17.  
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    Anonymous Coward, Jun 15th, 2011 @ 12:49pm

    Re:

    In America "kids" have a sense of entitlement and have to have "the jeans" that make them cool. A homeless person cares not what the label says, but is grateful for jeans to wear.

    I truly feel sorry for the homeless in America. No one should be homeless in such a country. The fact that they are speaks very poorly for the others.

     

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  18.  
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    Chosen Reject (profile), Jun 15th, 2011 @ 2:22pm

    Re: Copyright maximalists

    And I finally got my pony!!!!

     

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  19.  
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    Sinan Unur (profile), Jun 15th, 2011 @ 2:31pm

    I am trying to listen to that podcast

    ... however, I am not sure if the word "value" has been overloaded here. The demand curve shows the willingness of consumers to pay for each and every unit of the good. The "willingness to pay" (WTP) is the result of maximizing preference with respect to a budget constraint, so we can have things like "I value my gadget a gajillion dollars" without having the resources to buy it.

    The other meaning of "valuing something" is the willingness to protect and preserve it and put it to its best use once you have it. If you can get as many free mosquito nets as you want for free, there is really no need to protect and preserve the net because you can get one whenever you want.

    Now, the budget constraint of a poor person may prevent them from being able to pay the price, but that does not negate the fact that they might get a great benefit from such nets. If, in addition, you cannot get as many free nets as you want as often as you want, then you will "value" the free bed net in the sense that you will want to protect and preserve it and put it to its best use.

    I do not find the experimental evidence convincing that there is anything other than budget constraints and a resulting downward sloping demand curve operating here.

    The fact that this is undermining any local enterprising entrepreneur from trying to produce/procure bed nets and sell them is important. In the long run, it is much more important for poor countries that there are people who are willing to set up production (and employ people) which will not happen so long as anything and everything of value to the local population drops from the sky in an aid basket.

     

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  20.  
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    Sinan Unur (profile), Jun 15th, 2011 @ 2:45pm

    Re: I am trying to listen to that podcast

    And, I hear no mention of DDT.

    Malaria, Politics and DDT

     

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  21.  
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    Jose_X, Jun 15th, 2011 @ 2:47pm

    Don't use your China everyday

    Don't break something very expensive. Use it seldom.

    Paying for it extra can lead to treating it carefully, ie, not using it.

    Also:

    Software doesn't break (or at least many believe it can be "renewed" through a re-installation).

    High price can have the effect of making something difficult to replace.

    High price can also leverage the consumer's awareness of his/her imperfect knowledge over value to suggest that a more knowledgeable third party (or society itself) understands this should be priced higher. Some promotion and some types of marketing and brand building leverage this.

    Like culture, when a large group uses something, this also adds value (reinforced perhaps by the idea that society knows better).

    Experience (eg, proof of utility) leads to better price knowledge. This is one reason why so many new things get introduced. The mere fact it's new comes with value, and, in addition, what is new is more likely to be able to be priced higher.

     

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  22.  
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    Andreas, Jun 15th, 2011 @ 5:45pm

    Of Course

    Just because they used them didn't mean they valued them more than when they paid for them. It is probably more the mentality of if I use it it will wear out and I will have to buy a replacement. If it is free, who cares if it wears out? It was free.

    It reminds me of a story told to me by an elderly man I knew in my youth. He job took him all over the world. One trip was to Russia in the winter. It was snowing and periodically his cab driver would stop and get out to clean the windows. He finally queried the cab as to why he would stop and get out rather than use the windshield wipers. He cab driver's reply was the replacement wipers cost so much that he didn't want to use them unless he had somebody important in his cab.

     

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