The thesis discusses health financing policy, introducing or enhancing direct payment for health services in low income countries from a viewpoint of equity through theoretical and empirical economic analysis using the case of urban Zambia. It analyses equity implications of alternative direct payment mechanisms to user fee· voluntary prepayment and pre"purchased discount card. These alternative payment mechanisms are compared with the theory of consumer's choice in an econometric framework. Two theoretical models: demand for alternative payment mechanisms and demand for health services under chosen direct payment mechanisms, are elaborated applying expected utility theory and the law of demand, respectively. These models illustrate the effects of fee schedule, income, perceived health status and perceived quality of care on consumer's demand for health services. These demand models also predict the theoretical equity implications of alternative payment mechanisms. These theoretical explorations are empirically tested with data from the study field. Three data sources: household survey focusing on health seeking behaviour, records at health facilities, and outpatient questionnaire survey, are used for statistical analysis. Consumer's demand model for payment mechanisms is estimated with qualitative response logit model. Consumer's demand for health services is analysed not only with parametric method but also with non-parametric method for categorical data. The results of the statistical analyses support the theoretical demand model for health services and the effects of perceived health status in consumer's choice of payment mechanisms. Perceived quality of care is not found significant in the choice of payment mechanisms. These empirical findings suggest positive equity implications of employing voluntary prepayment or pre-purchase discount card in environment dominated by user fees even under conditions where the improvement of quality of care is difficult. These findings contribute to the economic theory of demand for health care, and feed evidence into the discussion on health financing policy in low income countries.