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Pharmaceutical innovation and the longevity of Australians: a first look

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  • Frank R. Lichtenberg
  • Gautier Duflos

Abstract

We examine the impact of pharmaceutical innovation on the longevity of Australians during the period 1995-2003. Due to the government's Pharmaceutical Benefits Scheme, Australia has much better data on drug utilization than most other countries. We find that mean age at death increased more for diseases with larger increases in mean drug vintage. The estimates indicate that increasing the mean vintage of drugs by 5 years would increase mean age at death by almost 11 months. The estimates also indicate that using newer drugs reduced the number of years of potential life lost before the ages of 65 and 70 (but not before age 75). During the period 1995-2003, mean age at death increased by about 2.0 years, from 74.4 to 76.4. The estimates imply that, in the absence of any increase in drug vintage, mean age at death would have increased by only 0.7 years. The increase in drug vintage accounts for about 65% of the total increase in mean age at death. We obtain a rough estimate of the cost per life-year gained from using newer drugs. Under our assumptions, using newer drugs (increasing drug vintage) increased life expectancy by 1.23 years and increased lifetime drug expenditure by $12,976; the cost per life-year gained from using newer drugs is $10,585. An estimate made by other investigators of the value of a statistical Australian life-year ($70,618) is 6.7 times as large as our estimate of the cost per life-year gained from using newer drugs. We discuss several reasons why our estimate of the cost per life-year gained from using newer drugs could be too high or too low.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14009.

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Date of creation: May 2008
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Handle: RePEc:nbr:nberwo:14009

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  1. Frank R. Lichtenberg & Suchin Virabhak, 2002. "Pharmaceutical-embodied technical progress, longevity, and quality of life: drugs as "equipment for your health"," NBER Working Papers 9351, National Bureau of Economic Research, Inc.
  2. Plutarchos Sakellaris & Daniel J. Wilson, 2001. "The production-side approach to estimating embodied technological change," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2001-20, Board of Governors of the Federal Reserve System (U.S.).
  3. Kniesner, Thomas J & Leeth, John D, 1991. " Compensating Wage Differentials for Fatal Injury Risk in Australia, Japan, and the United States," Journal of Risk and Uncertainty, Springer, Springer, vol. 4(1), pages 75-90, January.
  4. Sakellaris, Plutarchos & Wilson, Daniel J., 2002. "Quantifying embodied technological change," Working Paper Series, European Central Bank 0158, European Central Bank.
  5. Mark Bils, 2004. "Measuring the Growth from Better and Better Goods," NBER Working Papers 10606, National Bureau of Economic Research, Inc.
  6. Gene M. Grossman & Elhanan Helpman, 1993. "Innovation and Growth in the Global Economy," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262570971, December.
  7. Charles R. Hulten, 1992. "Growth Accounting When Technical Change is Embodied in Capital," NBER Working Papers 3971, National Bureau of Economic Research, Inc.
  8. Hulten, Charles R, 1992. "Growth Accounting When Technical Change Is Embodied in Capital," American Economic Review, American Economic Association, American Economic Association, vol. 82(4), pages 964-80, September.
  9. Bahk, Byong-Hong & Gort, Michael, 1993. "Decomposing Learning by Doing in New Plants," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 101(4), pages 561-83, August.
  10. Frank R. Lichtenberg, 2005. "Pharmaceutical Knowledge-Capital Accumulation and Longevity," NBER Chapters, in: Measuring Capital in the New Economy, pages 237-274 National Bureau of Economic Research, Inc.
  11. Timothy F. Bresnahan & Robert J. Gordon, 1996. "The Economics of New Goods," NBER Books, National Bureau of Economic Research, Inc, number bres96-1, July.
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Cited by:
  1. Lichtenberg, Frank R., 2014. "The impact of pharmaceutical innovation on longevity and medical expenditure in France, 2000–2009," Economics & Human Biology, Elsevier, Elsevier, vol. 13(C), pages 107-127.

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