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Assessing Consumer Gains from a Drug Price Control Policy in the U.S

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  • Rexford Santerre
  • John A. Vernon

Abstract

This paper uses national data for the period 1960 to 2000 to estimate an aggregate private consumer demand for pharmaceuticals in the U.S. The estimated demand curve is then used to simulate the value of consumer surplus gains from a drug price control regime that holds drug price increases to the same rate of growth as the general consumer price level over the time period from 1981 to 2000. Based upon a 7 percent real interest rate, we find that the future value of consumer surplus gains from this hypothetical policy would have been $319 billion at the end of 2000. According to a recent study, that same drug price control regime would have led to 198 fewer new drugs being brought to the U.S. market over this period. Therefore, we approximate that the average social opportunity cost per drug developed during this period to be approximately $1.6 billion. Recent research on the value of pharmaceuticals suggests that the social benefits of a new drug may be far greater than this estimated social opportunity cost.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11139.

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Date of creation: Feb 2005
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Publication status: published as Santerre, Rexford E. and John A. Vernon. "Assessing Consumer Gains From A Drug Price Control Policy In The United States," Southern Economic Journal, 2006, v73(1,Jul), 233-245.
Handle: RePEc:nbr:nberwo:11139

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  1. repec:reg:rpubli:388 is not listed on IDEAS
  2. Berndt, Ernst R & Griliches, Zvi & Rosett, Joshua G, 1993. "Auditing the Producer Price Index: Micro Evidence from Prescription Pharamceutical Preparations," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 11(3), pages 251-64, July.
  3. repec:reg:wpaper:388 is not listed on IDEAS
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  1. repec:hal:wpaper:halshs-00587713 is not listed on IDEAS
  2. repec:reg:wpaper:534 is not listed on IDEAS

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