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Gradual Incorporation of Information: Pharmaceutical Stocks and the Evolution of President Clinton's Health Care Reform

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  • Ellison, Sara Fisher
  • Mullin, Wallace P
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    Abstract

    We examine the effect of the evolution of President Clinton's health care reform proposal over January 1992-October 1993 on pharmaceutical stock prices. We identify a 52.3 percent decline in market-adjusted prices, which we then associate with health care reform. Applying a new technique, isotonic regression, we find most of the decline occurred gradually. Much of the decline occurred as the Clinton plan adopted strategies to contain health care costs, including "managed competition" and implicit regulation. Indirect evidence suggests that the wealth lost by pharmaceutical companies may have been largely an anticipated transfer. Our results are relevant to understanding the likely effects of the Clinton plan and more recent proposals. Many other policy changes are marked by gradual public revelation of information, which may not be completely observable by a researcher. Our approach may uncover information about the anticipated effects of policies unavailable from a traditional event study. Copyright 2001 by the University of Chicago.

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    Bibliographic Info

    Article provided by University of Chicago Press in its journal Journal of Law & Economics.

    Volume (Year): 44 (2001)
    Issue (Month): 1 (April)
    Pages: 89-129

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    Handle: RePEc:ucp:jlawec:v:44:y:2001:i:1:p:89-129

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    Web page: http://www.journals.uchicago.edu/JLE/

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    Cited by:
    1. Sara Fisher Ellison & Catherine Wolfram, 2004. "Coordinating on Lower Prices: Pharmaceutical Pricing Under Political Pressure," Economics Working Papers 0048, Institute for Advanced Study, School of Social Science.
    2. Joseph Golec & John Vernon, 2010. "Financial Effects of Pharmaceutical Price Regulation on R&D Spending by EU versus US Firms," PharmacoEconomics, Springer, vol. 28(8), pages 615-628, August.
    3. Ralph Koijen & Tomas Philipson & Harald Uhlig, 2014. "Financial Health Economics," NBER Working Papers 20075, National Bureau of Economic Research, Inc.
    4. Sara Fisher Ellison & Catherine Wolfram, 2001. "Pharmaceutical Prices and Political Activity," NBER Working Papers 8482, National Bureau of Economic Research, Inc.
    5. Joseph Golec & Shantaram Hegde & John A. Vernon, 2005. "Pharmaceutical Stock Price Reactions to Price Constraint Threats and Firm-Level R&D Spending," NBER Working Papers 11229, National Bureau of Economic Research, Inc.
    6. Keith M. Drake & Martha A. Starr & Thomas McGuire, 2014. "Do "Reverse Payment" Settlements of Brand-Generic Patent Disputes in the Pharmaceutical Industry Constitute an Anticompetitive Pay for Delay?," NBER Working Papers 20292, National Bureau of Economic Research, Inc.
    7. Joseph H. Golec & John A. Vernon, 2006. "European Pharmaceutical Price Regulation, Firm Profitability, and R&D Spending," NBER Working Papers 12676, National Bureau of Economic Research, Inc.
    8. Croonenbroeck, Carsten & Monaco, Fabrizio Leonardo & Christensen, Mads Julius, 2012. "Does Danish football club Br√łndby swim with the fishes? An application of the reversed news model," Discussion Papers 330, European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics.
    9. Regan, Tracy L., 2008. "Generic entry, price competition, and market segmentation in the prescription drug market," International Journal of Industrial Organization, Elsevier, vol. 26(4), pages 930-948, July.
    10. Gautier, Pieter A. & Siegmann, Arjen & Van Vuuren, Aico, 2009. "Terrorism and attitudes towards minorities: The effect of the Theo van Gogh murder on house prices in Amsterdam," Journal of Urban Economics, Elsevier, vol. 65(2), pages 113-126, March.

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