Advanced Search
MyIDEAS: Login to save this paper or follow this series

When Is Prevention More Profitable than Cure? The Impact of Time-Varying Consumer Heterogeneity

Contents:

Author Info

  • Michael Kremer
  • Christopher M. Snyder

Abstract

We argue that in pharmaceutical markets, variation in the arrival time of consumer heterogeneity creates differences between a producer’s ability to extract consumer surplus with preventives and treatments, potentially distorting R&D decisions. If consumers vary only in disease risk, revenue from treatments—sold after the disease is contracted, when disease risk is no longer a source of private information—always exceeds revenue from preventives. The revenue ratio can be arbitrarily high for sufficiently skewed distributions of disease risk. Under some circumstances, heterogeneity in harm from a disease, learned after a disease is contracted, can lead revenue from a treatment to exceed revenue from a preventative. Calibrations suggest that skewness in the U.S. distribution of HIV risk would lead firms to earn only half the revenue from a vaccine as from a drug. Empirical tests are consistent with the predictions of the model that vaccines are less likely to be developed for diseases with substantial disease-risk heterogeneity.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w18862.pdf
Download Restriction: Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18862.

as in new window
Length:
Date of creation: Mar 2013
Date of revision:
Handle: RePEc:nbr:nberwo:18862

Note: EFG HC
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Blanchflower, David G. & Oswald, Andrew J., 2001. "Well-Being Over Time in Britain and the USA," The Warwick Economics Research Paper Series (TWERPS) 616, University of Warwick, Department of Economics.
  2. Eugenio J. Miravete, 1995. "Screening Consumers through Alternative Pricing Mechanisms," Discussion Papers 1145, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Daron Acemoglu & Joshua Linn, 2004. "Market Size in Innovation: Theory and Evidence from the Pharmaceutical Industry," Levine's Working Paper Archive 228400000000000002, David K. Levine.
  4. Malueg, David A. & Snyder, Christopher M., 2006. "Bounding the relative profitability of price discrimination," International Journal of Industrial Organization, Elsevier, vol. 24(5), pages 995-1011, September.
  5. Kessing, Sebastian & Nuscheler, Robert, 2003. "Monopoly pricing with negative network effects: the case of vaccines," Discussion Papers, Research Unit: Market Processes and Governance SP II 2003-06, Social Science Research Center Berlin (WZB).
  6. Amy Finkelstein, 2004. "Static and Dynamic Effects of Health Policy: Evidence From the Vaccine Industry," The Quarterly Journal of Economics, MIT Press, vol. 119(2), pages 527-564, May.
  7. Richard G. Newell & Adam B. Jaffe & Robert N. Stavins, 1998. "The Induced Innovation Hypothesis and Energy-Saving Technological Change," NBER Working Papers 6437, National Bureau of Economic Research, Inc.
  8. Oster, Emily & Shoulson, Ira & Quaid, Kimberly & Dorsey, E. Ray, 2010. "Genetic adverse selection: Evidence from long-term care insurance and Huntington disease," Journal of Public Economics, Elsevier, vol. 94(11-12), pages 1041-1050, December.
  9. Clay, Karen B & Sibley, David S & Srinagesh, Padmanabhan, 1992. "Ex Post vs. Ex Ante Pricing: Optional Calling Plans and Tapered Tariffs," Journal of Regulatory Economics, Springer, vol. 4(2), pages 115-38, June.
  10. World Bank, 2000. "World Development Indicators 2000," World Bank Publications, The World Bank, number 13828, July.
  11. Courty, Pascal, 2003. "Ticket Pricing under Demand Uncertainty," Journal of Law and Economics, University of Chicago Press, vol. 46(2), pages 627-52, October.
  12. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
  13. Lewis, Tracy R & Sappington, David E M, 1994. "Supplying Information to Facilitate Price Discrimination," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(2), pages 309-27, May.
  14. Getzen, Thomas E., 2000. "Health care is an individual necessity and a national luxury: applying multilevel decision models to the analysis of health care expenditures," Journal of Health Economics, Elsevier, vol. 19(2), pages 259-270, March.
  15. Stole, Lars A & Zwiebel, Jeffrey, 1996. "Organizational Design and Technology Choice under Intrafirm Bargaining," American Economic Review, American Economic Association, vol. 86(1), pages 195-222, March.
  16. Gersovitz, Mark & Hammer, Jeffrey S., 2005. "Tax/subsidy policies toward vector-borne infectious diseases," Journal of Public Economics, Elsevier, vol. 89(4), pages 647-674, April.
  17. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:18862. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.