The following is the first article in our new Guest Author Series, which gives affiliates the opportunity to share their research with the social science community.  This article was written by Plamen Nikolov as a short synopsis of his research into the economics of HIV/AIDS. 

Price of a Sexual Partner as a Determinant
AIDS is first and foremost a public health problem, but it is a problem with deep economic roots. Economists have a vital role to play in helping public health officials and policymakers understand the AIDS epidemic and design efficient policies to limit its impact. Bargaining power, high prevalence of other STDs, circumcision, and limited education campaigns for behavior change have been a few among the many explanations proposed for the stable incidence rate of HIV over the last 15 years. In fact, public health experts have long promised that once effective education campaigns materialize, HIV incidence rates in Africa will eventually decrease. But this claim stands in contrast to the recent experience of countries absorbing large PEPFAR grants targeting behavior change.

Towards understanding this puzzle, economics can provide a powerful perspective in examining the pattern of the epidemic's spread. The central idea from an economic perspective is that HIV is not spread randomly, as tends to be the case with the bacteria that cause tuberculosis or the virus that causes the common cold. Rather, HIV is most often transmitted as a consequence of purposeful behavior that has a strong economic foundation and responds to economic incentives.

Consider two men, one who expects to live for another ten years, and a second who expects to live for another fifty years. In a world without HIV, the choice of sexual behavior would not depend on the expected future life expectancy. However, in a world with HIV, sexual behavior carries a risk of death from HIV, assumed to happen ten years after infection. Imagine that you are one of these two men. Will you choose to engage in unsafe sexual behavior if you are aware that by abstaining you significantly increase your lifespan? You would probably choose to abstain. But what if abstinence or engaging in safe sex had no effect on your life span? Then, you would probably continue with your unsafe practices. If an individual knows that he or she will die for certain in ten years even without HIV (HIV infection usually results in death approximately ten years from the time of infection), the incentive to avoid risky behavior that will expose him or her to HIV is minimal. In other words, one would expect that individuals with higher future value of life should have a greater response to the HIV risk.

The economic perspective suggests a strong causal link between income and life expectancy on behavior change. These two factors alone substantially close the behavioral response gap between HIV risk groups in Africa and in the United States. An economic explanation of the limited behavior change in Africa relative to the US experience will point to the fact that US gay men in the United States were wealthier and had longer life expectancy than individuals in Africa. In fact, it turns out that an increment in life expectancy for an individual is a stronger predictor than income on individual’s sexual behavior.

Oster (2007)* analyzes the effect of HIV risk on behavioral response, including the interaction between malaria prevalence and the HIV rate.  In African areas with high rates of malaria, people already face a high risk of death and may have little incentive to change their sexual behavior. While Oster’s idea exploits differences in the objective life expectancy (through objective mortality calculations), it misses an even more salient measure of individual’s lifespan: their subjectively formed life expectancy. Asked in field surveys about their objective life expectancies, most people in sub-Saharan countries are extraordinarily off.

Even more importantly, if individuals are forward-looking, it is likely that they incorporate their subjectively formed expectations about future events in decisions about their health, savings, consumption, etc. Comparison of subjective probabilities with actual outcomes shows that the probabilities have considerable predictive power in situations where individuals have considerable private information, such as survival and retirement. Thus, an important mediating mechanism, missing in Oster’s framework, and which we develop in our project, can predict individual’s willingness for behavior change.

The primary methodology in this research paper will focus on estimating what determines the choice of sexual behavior. The identification strategy relies on a reduced form equation that models the change of sexual behavior as a function of the HIV prevalence of the region where the individual resides, individual subjective life expectancy and a set of individual’s and regional controls. A simple naïve OLS suffers from a reverse causality issue inherent in the estimation. HIV is a sexually transmitted infection and areas where people have a lot of sex are more likely to have high rates of HIV. Even if people respond to the epidemic by decreasing their risky behavior, OLS estimates may well be biased toward finding a positive relationship between HIV and sexual behavior. We will address this reverse causality issue by instrumenting for HIV.

The Contribution of Economic Reasoning to Policymaking
Though most governments recognize that intervention in the area of HIV and AIDS in developing countries is necessary, the complexity of the mechanisms that lead to HIV infection and that determine the social and economic impact make effective policymaking an especially challenging task.  Sound economic reasoning encourages policymaking directed at underlying problems, not at superficial symptoms.

While existing work on HIV in Africa focuses on cultural barriers to changing behavior, economic reasoning from the point of view of the infected individuals suggests that standard economic theory may provide significant insights:

• Individuals may rationally decide to accept unsafe sex in exchange for the short-term benefit associated with it.
• While public health advocates may encourage people to exercise safe sex, people will only perform it when it is the best use of their scarce time.

In many sub-Saharan African countries, the incentive to change sexual behavior in response to HIV risks is very low. Policymakers must recognize that the issue is not entirely due to cultural differences. There is an important link between response to HIV and other perceived mortality risks. As governments and NGOs consider interventions like drug treatment, which change the cost of infection, the possibility of behavior change as a function of subjective life expectancy and future income is very real. Targeting populations with higher income and higher life expectancy within these countries are strategies most likely to elicit the desired behavioral response that governments and development organizations would like to see. Furthermore, because mortality threats and poverty remain fundamental barriers to HIV prevention in Africa, interventions designed to decrease mortality risks, such as malaria, could result in promoting HIV prevention even more than interventions directly targeting HIV.

Plamen Nikolov is a PhD Candidate in Health Economics at the Department of Economics.  His research interests include development economics, health economics, and applied microeconomics.  The research discussed in this article relates to Nikolov’s current focus on the economics of infectious disease in Africa and is a follow-up to the work started by Dow, Philipson and Sala-I-Martin (1999), Becker, Philipson and Soares (2005) and Murphy and Topel (2006) on competing mortality risks within the economics literature.

*Emily Oster, HIV and Sexual Behavior Change: Why Not Africa? NBER Working Papers 13049, (2007).

Other References:

Becker, Tomas Philipson Gary and Rodrigo Soares, "The Quantity and Quality of Life and the Evolution of World Inequality," American Economic Review, March 2005, 95 (1), 277-291.

Dow, William, Tomas Philipson, and Xavier Sala-I-Martin, "Longevity
Complementarities Under Competing Risks.," American Economic Review, 1999, 89 (5), 1357-1372.

Murphy, Kevin and Robert Topel, "The Value of Health and Longevity," Journal of Political Economy.