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Evaluating Innovation and Moral Hazard in Pharmaceuticals

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  • Paris Cleanthous
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    Abstract

    This paper formulates an empirical methodology that evaluates pharmaceutical innovation in the American antidepressant market by quantifying patient welfare benefits from innovation. While evaluating pharmaceutical innovation in antidepressants, I uncover and address the moral hazard issue that arises due to the existence of prescription drug insurance coverage. A combination of market-level data, drug and patient characteristics are used to estimate demand for all antidepressants between 1980 and 2001. The paper estimates large and varied patient welfare gains due to innovation and helps explain a detected divergence between social and private patient benefits by the existence of insurance.

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    File URL: http://papers.econ.ucy.ac.cy/RePEc/papers/03-11.pdf
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    Bibliographic Info

    Paper provided by University of Cyprus Department of Economics in its series University of Cyprus Working Papers in Economics with number 03-2011.

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    Length: 49 pages
    Date of creation: Jan 2011
    Date of revision:
    Handle: RePEc:ucy:cypeua:03-2011

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    Web page: http://www.econ.ucy.ac.cy

    Related research

    Keywords: Health; Innovation; Moral Hazard; Pharmaceuticals; Welfare;

    This paper has been announced in the following NEP Reports:

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    1. Paul Ellickson & Scott Stern & Manuel Trajtenberg, 1999. "Patient Welfare and Patient Compliance: An Empirical Framework for Measuring the Benefits from Pharmaceutical Innovation," NBER Working Papers 6890, National Bureau of Economic Research, Inc.
    2. Aviv Nevo, 2000. "A Practitioner's Guide to Estimation of Random-Coefficients Logit Models of Demand," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(4), pages 513-548, December.
    3. Ellison, S & Cockburn, I & Griliches, A & Hausman, J, 1996. "Characteristics of Demand for Pharmaceutical Products : an Examination of four Cephalosporins," Working papers 96-24, Massachusetts Institute of Technology (MIT), Department of Economics.
    4. Frank R. Lichtenberg, 1996. "The Effect of Pharmaceutical Utilization and Innovation on Hospitalization and Mortality," NBER Working Papers 5418, National Bureau of Economic Research, Inc.
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