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Physician Agency and Adoption of Generic Pharmaceuticals

  • Toshiaki Iizuka
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    I examine physician agency in health care services in the context of the choice between brand-name and generic pharmaceuticals. I examine micro-panel data from Japan, where physicians can legally make profits by prescribing and dispensing drugs. The results indicate that physicians often fail to internalize patient costs, explaining why cheaper generics are infrequently adopted. Doctors respond to markup differentials between the two versions, indicating another agency problem. However, generics' markup advantages are shortlived, which limits their impact on increasing generic adoption. Additionally, state dependence and heterogeneous doctor preferences affected generics' adoption. Policy makers can target these factors to improve static efficiency. (JEL D82, I11, J44, L65)

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    Article provided by American Economic Association in its journal American Economic Review.

    Volume (Year): 102 (2012)
    Issue (Month): 6 (October)
    Pages: 2826-58

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    Handle: RePEc:aea:aecrev:v:102:y:2012:i:6:p:2826-58
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    1. Ching, Andrew, 2008. "Consumer Learning and Heterogeneity: Dynamics of Demand for Prescription Drugs after Patent Expiration," MPRA Paper 7265, University Library of Munich, Germany.
    2. Regan, Tracy L., 2008. "Generic entry, price competition, and market segmentation in the prescription drug market," International Journal of Industrial Organization, Elsevier, vol. 26(4), pages 930-948, July.
    3. Coscelli, Andrea, 2000. "The Importance of Doctors' and Patients' Preferences in the Prescription Decision," Journal of Industrial Economics, Wiley Blackwell, vol. 48(3), pages 349-69, September.
    4. Lundin, Douglas, 2000. "Moral hazard in physician prescription behavior," Journal of Health Economics, Elsevier, vol. 19(5), pages 639-662, September.
    5. Toshiaki Iizuka, 2007. "Experts' agency problems: evidence from the prescription drug market in Japan," RAND Journal of Economics, RAND Corporation, vol. 38(3), pages 844-862, 09.
    6. Liu, Ya-Ming & Yang, Yea-Huei Kao & Hsieh, Chee-Ruey, 2009. "Financial incentives and physicians' prescription decisions on the choice between brand-name and generic drugs: Evidence from Taiwan," Journal of Health Economics, Elsevier, vol. 28(2), pages 341-349, March.
    7. Toshiaki Iizuka, 2009. "Generic Entry In A Regulated Pharmaceutical Market," The Japanese Economic Review, Japanese Economic Association, vol. 60(1), pages 63-81.
    8. Rivers, Douglas & Vuong, Quang H., 1988. "Limited information estimators and exogeneity tests for simultaneous probit models," Journal of Econometrics, Elsevier, vol. 39(3), pages 347-366, November.
    9. Jeffrey M. Wooldridge, 2005. "Simple solutions to the initial conditions problem in dynamic, nonlinear panel data models with unobserved heterogeneity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(1), pages 39-54.
    10. Sara Ellison Fisher & Iain Cockburn & Zvi Griliches & Jerry Hausman, 1997. "Characteristics of Demand for Pharmaceutical Products: An Examination of Four Cephalosporins," RAND Journal of Economics, The RAND Corporation, vol. 28(3), pages 426-446, Autumn.
    11. Christopher C. Afendulis & Daniel P. Kessler, 2007. "Tradeoffs from Integrating Diagnosis and Treatment in Markets for Health Care," American Economic Review, American Economic Association, vol. 97(3), pages 1013-1020, June.
    12. Judith K. Hellerstein, 1998. "The Importance of the Physician in the Generic Versus Trade-Name Prescription Decision," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 108-136, Spring.
    13. Jonathan Gruber & Maria Owings, 1994. "Physician Financial Incentives and Cesarean Section Delivery," NBER Working Papers 4933, National Bureau of Economic Research, Inc.
    14. Keane, Michael P, 1997. "Modeling Heterogeneity and State Dependence in Consumer Choice Behavior," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(3), pages 310-27, July.
    15. Thomas N. Hubbard, 1998. "An Empirical Examination of Moral Hazard in the Vehicle Inspection Market," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 406-426, Summer.
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