Averting adverse selection: The Government of India's scheme to distribute affordable medicines

An analysis of Pradhan Mantri Bhartiya Janaushadhi Parijoyana, a Government of India scheme which aims to provide quality generic medicines at affordable prices, is performed using a stylized model. There is distrust on the quality of generic medicines provided by the government and the government is taking enough measures to counter this perception. However, this distrust ensures that adverse selection is avoided wherein the poor patients become the scheme's beneficiaries and the wealthy patients don't intend to get generic medicines from this scheme. Hence, it is rational for the government to expend limited effort in creating awareness on the high quality of generic medicines so as to screen the wealthy patients from the poor patients. However, the government should exert maximum effort possible in ensuring the availability of generic medicines so that the search cost is minimized. It is surprisingly found that the government's effort required to screen the wealthy patients from the poor patients decreases with the availability of generic medicines. •Pradhan Mantri Bhartiya Janaushadhi Pariyojana (PMBJP) is analyzed.•The objective of the PMBJP scheme is to provide affordable generic medicines.•A stylized model is developed to study adverse selection in the PMBJP scheme.•Conditions under which the poor benefit from the PMBJP scheme is provided.