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Drug Innovations and Welfare Measures Computed from Market Demand: The Case of Anti-cholesterol Drugs

  • Abe Dunn
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The pharmaceutical industry is characterized as having substantial investment in R&D and a large number of new product introductions, which poses special problems for price measurement caused by the quality of drug products changing over time. This paper applies recent demand estimation techniques to individual-level data to construct a constant-quality price index for anti-cholesterol drugs. Although the average price for anti-cholesterol drugs does not change over the sample period, I find that the constant-quality price index drops by 27 percent, a pace more in line with our expectations in such a dynamic segment of the industry. (JEL C43, L11, L65, O31)

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Article provided by American Economic Association in its journal American Economic Journal: Applied Economics.

Volume (Year): 4 (2012)
Issue (Month): 3 (July)
Pages: 167-89

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Handle: RePEc:aea:aejapp:v:4:y:2012:i:3:p:167-89
Note: DOI: 10.1257/app.4.3.167
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  15. Aviv Nevo, 2003. "New Products, Quality Changes, and Welfare Measures Computed from Estimated Demand Systems," The Review of Economics and Statistics, MIT Press, vol. 85(2), pages 266-275, May.
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