Drug Innovations and Welfare Measures Computed from Market Demand: The Case of Anti-Cholesterol Drugs
AbstractThe pharmaceutical industry is characterized as having substantial investment in R&D and a large number of new product introductions, which poses special problems for price measurement caused by the quality of drug products changing over time. This paper applies recent demand estimation techniques to construct a constant- quality price index for anti-cholesterol drugs. Demand is estimated using a nationally representative sample of individuals over the period 1996 to 2007 that includes detailed information on individual health conditions, demographics, insurance, and prescription drug choices. Although the average price for anti-cholesterol drugs does not change over the sample period, I .nd that the constant-quality price index drops by 22 percent, a pace more in line with our expectations in such a dynamic segment of the industry. This result is robust to a number of alternative assumptions, highlighting the importance of controlling for quality in markets with signi.cant innovation. The demand estimates also reveal that the bene.ts from new innovations depend on the health conditions of individuals which may impact quality-adjusted prices for di¤erent populations.
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Bibliographic InfoPaper provided by Bureau of Economic Analysis in its series BEA Working Papers with number 0057.
Date of creation: Oct 2010
Date of revision:
Other versions of this item:
- Abe Dunn, 2012. "Drug Innovations and Welfare Measures Computed from Market Demand: The Case of Anti-cholesterol Drugs," American Economic Journal: Applied Economics, American Economic Association, vol. 4(3), pages 167-89, July.
- E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-08-02 (All new papers)
- NEP-COM-2011-08-02 (Industrial Competition)
- NEP-HEA-2011-08-02 (Health Economics)
- NEP-INO-2011-08-02 (Innovation)
- NEP-MAC-2011-08-02 (Macroeconomics)
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