Knowledge Sharing

Network Externalities and Decisions about Investments in Health Information Systems in Low- and Middle-Income Countries

Most studies regarding Health Information Systems (HIS) in low and middle-income countries have focused on their adoption and use based on survey data but there has been limited work on network effects and evolution of natural standards in the HIS industry. However, network externalities will play an important role in determining the socially optimal solution and much can be learned from other industries with strong network effects. Based on a review of other industries with strong network effects, this paper argues:  a) there little evidence to suggest that the market will arrive at an inferior solution even when network effects are strong, b) standardization that results from network effects is beneficially limited to those components that have the strong network effects, c) when the source of the network externality itself benefits from innovation, the market will gravitate toward a single firm controlling the standard; however, when the standard is not subject to innovation, the market will gravitate toward a single standard that is not controlled by a single firm in order to benefit from competition. This paper highlights the potential risks of global agencies/donors swaying the market for HIS towards standardization, which could lead to an inferior HIS solution.

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