Advanced Search
MyIDEAS: Login to save this article or follow this journal

Innovation and the welfare effects of public drug insurance

Contents:

Author Info

  • Lakdawalla, Darius
  • Sood, Neeraj

Abstract

Rewarding inventors with inefficient monopoly power has long been regarded as the price of encouraging innovation. Prescription drug insurance escapes that trade-off and achieves an elusive goal: lowering static deadweight loss, without reducing incentives for innovation. As a result of this feature, the public provision of drug insurance can be welfare-improving, even for risk-neutral and purely self-interested consumers. The design of insurers' cost-sharing schedules can either reinforce or mitigate this result. Schedules that impose higher consumer cost-sharing requirements on more expensive drugs help ensure that insurance subsidies translate into higher utilization, rather than pure increases in manufacturer profits. Moreover, some degree of price-negotiation with manufacturers is likely to be welfare-improving, but the optimal degree depends on the size of such transactions costs, as well as the social cost of weakening innovation incentives by lowering innovator profits. These results have practical implications for the evaluation of public drug insurance programs like the US Medicaid and Medicare Part D programs, along with European insurance schemes.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/B6V76-4V1TXND-1/2/bc9c59eca8e55268db4c76cf17885dd1
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 93 (2009)
Issue (Month): 3-4 (April)
Pages: 541-548

as in new window
Handle: RePEc:eee:pubeco:v:93:y:2009:i:3-4:p:541-548

Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/505578

Related research

Keywords: Prescription drugs Health insurance Innovation;

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Garber Alan M & Jones Charles I. & Romer Paul, 2006. "Insurance and Incentives for Medical Innovation," Forum for Health Economics & Policy, De Gruyter, De Gruyter, vol. 9(2), pages 1-27, March.
  2. Cutler, David M & Gruber, Jonathan, 1996. "Does Public Insurance Crowd Out Private Insurance?," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 111(2), pages 391-430, May.
  3. Carl Shapiro, 2008. "Patent Reform: Aligning Reward and Contribution," NBER Chapters, in: Innovation Policy and the Economy, Volume 8, pages 111-156 National Bureau of Economic Research, Inc.
  4. Michael Kremer, 2000. "Creating Markets for New Vaccines Part II: Design Issues," NBER Working Papers 7717, National Bureau of Economic Research, Inc.
  5. Tomas J. Philipson & Anupam B. Jena, 2006. "Surplus Appropriation from R&D and Health Care Technology Assessment Procedures," NBER Working Papers 12016, National Bureau of Economic Research, Inc.
  6. Browning, Edgar K, 1976. "The Marginal Cost of Public Funds," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 84(2), pages 283-98, April.
  7. Kremer, Michael R., 1998. "Patent Buyouts: A Mechanism for Encouraging Innovation," Scholarly Articles 3693705, Harvard University Department of Economics.
  8. Lakdawalla, Darius & Sood, Neeraj, 2013. "Health insurance as a two-part pricing contract," Journal of Public Economics, Elsevier, Elsevier, vol. 102(C), pages 1-12.
  9. Martin Feldstein, 1999. "Tax Avoidance And The Deadweight Loss Of The Income Tax," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 674-680, November.
  10. Mark Duggan & Fiona Scott Morton, 2010. "The Effect of Medicare Part D on Pharmaceutical Prices and Utilization," American Economic Review, American Economic Association, American Economic Association, vol. 100(1), pages 590-607, March.
  11. Michael Kremer, 2000. "Creating Markets for New Vaccines Part I: Rationale," NBER Working Papers 7716, National Bureau of Economic Research, Inc.
  12. William D. Nordhaus, 2004. "Schumpeterian Profits in the American Economy: Theory and Measurement," NBER Working Papers 10433, National Bureau of Economic Research, Inc.
  13. Michael Kremer, 1998. "Patent Buyouts: A Mechanism For Encouraging Innovation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 113(4), pages 1137-1167, November.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Volker Grossmann, 2011. "Do Cost-sharing and Entry Deregulation Curb Pharmaceutical Innovation?," CESifo Working Paper Series 3439, CESifo Group Munich.
  2. Jeffrey Clemens, 2012. "The Effect of U.S. Health Insurance Expansions on Medical Innovation," Discussion Papers, Stanford Institute for Economic Policy Research 11-016, Stanford Institute for Economic Policy Research.
  3. Rosella Levaggi & Michele Moretto & Paolo Pertile, 2013. "The dynamics of pharmaceutical regulation and R&D investments," Working Papers 13/2013, University of Verona, Department of Economics.
  4. Lakdawalla, Darius & Sood, Neeraj & Gu, Qian, 2013. "Pharmaceutical advertising and Medicare Part D," Journal of Health Economics, Elsevier, vol. 32(6), pages 1356-1367.
  5. Glazer, Jacob & McGuire, Thomas G., 2012. "A welfare measure of “offset effects” in health insurance," Journal of Public Economics, Elsevier, Elsevier, vol. 96(5), pages 520-523.
  6. Jena, Anupam B. & Philipson, Tomas J., 2013. "Endogenous cost-effectiveness analysis and health care technology adoption," Journal of Health Economics, Elsevier, vol. 32(1), pages 172-180.
  7. Darius Lakdawalla & Neeraj Sood, 2006. "Health Insurance as a Two-Part Pricing Contract," NBER Working Papers 12681, National Bureau of Economic Research, Inc.
  8. Hostenkamp, Gisela, 2013. "Do follow-on therapeutic substitutes induce price competition between hospital medicines? Evidence from the Danish hospital sector," Health Policy, Elsevier, vol. 111(1), pages 68-77.
  9. Patricia M. Danzon & Adrian K. Towse & Jorge Mestre-Ferrandiz, 2012. "Value-Based Differential Pricing: Efficient Prices for Drugs in a Global Context," NBER Working Papers 18593, National Bureau of Economic Research, Inc.
  10. Tomas J. Philipson & George Zanjani, 2013. "Economic Analysis of Risk and Uncertainty induced by Health Shocks: A Review and Extension," NBER Working Papers 19005, National Bureau of Economic Research, Inc.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:pubeco:v:93:y:2009:i:3-4:p:541-548. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.