Pharmaceutical Industry, Drug Quality and Regulation: Evidence from US and Italy
AbstractThis paper examines the relationship between drug price and drug quality and how it varies across two of the most common regulatory regimes in the pharmaceutical market: minimum efficacy standards (MES) and a mix of minimum efficacy standards and price control mechanisms (MES+PC). Through a simple model of adverse selection we model the interaction between firms, heterogeneous buyers and the regulator. The theoretical analysis provides two results. First, an MES regime provides greater incentives to produce high quality drugs. Second, an MES+PC mix reduces the difference in price between the highest and lowest quality drugs on the market. The empirical analysis based on US and Italian data corroborates these results.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14567.
Date of creation: Dec 2008
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Other versions of this item:
- Vincenzo Atella & Jay Bhattacharya & Lorenzo Carbonari, 2008. "Pharmaceutical industry, drug quality and regulation. Evidence from US and Italy," CEIS Research Paper 138, Tor Vergata University, CEIS, revised 16 Dec 2008.
- I1 - Health, Education, and Welfare - - Health
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-12-21 (All new papers)
- NEP-COM-2008-12-21 (Industrial Competition)
- NEP-HEA-2008-12-21 (Health Economics)
- NEP-IND-2008-12-21 (Industrial Organization)
- NEP-MIC-2008-12-21 (Microeconomics)
- NEP-REG-2008-12-21 (Regulation)
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