IDEAS home Printed from https://ideas.repec.org/a/ecm/emetrp/v73y2005i4p1137-1173.html
   My bibliography  Save this article

Uncertainty and Learning in Pharmaceutical Demand

Author

Listed:
  • Gregory S. Crawford
  • Matthew Shum

Abstract

Exploiting a rich panel data set on anti-ulcer drug prescriptions, we measure the effects of uncertainty and learning in the demand for pharmaceutical drugs. We estimate a dynamic matching model of demand under uncertainty in which patients learn from prescription experience about the effectiveness of alternative drugs. Unlike previous models, we allow drugs to have distinct symptomatic and curative effects, and endogenize treatment length by allowing drug choices to affect patients' underlying probability of recovery. We find that drugs' rankings along these dimensions differ, with high symptomatic effects for drugs with the highest market shares and high curative effects for drugs with the greatest medical efficacy. Our results also indicate that while there is substantial heterogeneity in drug efficacy across patients, learning enables patients and their doctors to dramatically reduce the costs of uncertainty in pharmaceutical markets. Copyright The Econometric Society 2005.

Suggested Citation

  • Gregory S. Crawford & Matthew Shum, 2005. "Uncertainty and Learning in Pharmaceutical Demand," Econometrica, Econometric Society, vol. 73(4), pages 1137-1173, July.
  • Handle: RePEc:ecm:emetrp:v:73:y:2005:i:4:p:1137-1173
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1111/j.1468-0262.2005.00612.x
    File Function: link to full text
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Jacobsen, Ben & Potters, Jan & Schram, Arthur & van Winden, Frans & Wit, Jorgen, 2000. "(In)accuracy of a European political stock market: The influence of common value structures," European Economic Review, Elsevier, pages 205-230.
    2. Ball, Sheryl B. & Bazerman, Max H. & Carroll, John S., 1991. "An evaluation of learning in the bilateral winner's curse," Organizational Behavior and Human Decision Processes, Elsevier, pages 1-22.
    3. Robert Forsythe & R. Mark Isaac & Thomas R. Palfrey, 1989. "Theories and Tests of "Blind Bidding" in Sealed-Bid Auctions," RAND Journal of Economics, The RAND Corporation, pages 214-238.
    4. Dyer, Douglas & Kagel, John H & Levin, Dan, 1989. "A Comparison of Naive and Experienced Bidders in Common Value Offer Auctions: A Laboratory Analysis," Economic Journal, Royal Economic Society, vol. 99(394), pages 108-115, March.
    5. Eddie Dekel & Michele Piccione, 2000. "Sequential Voting Procedures in Symmetric Binary Elections," Journal of Political Economy, University of Chicago Press, pages 34-55.
    6. Timothy Feddersen & Wolfgang Pesendorfer, 1997. "Voting Behavior and Information Aggregation in Elections with Private Information," Econometrica, Econometric Society, pages 1029-1058.
    7. Menezes, F.M. & Monteiro, P.K. & Temini, A., 1998. "Discrete Public Goods With Incomplete Information," Papers 348, Australian National University - Department of Economics.
    8. Kyle Bagwell & Robert Staiger, 1997. "Collusion Over the Business Cycle," RAND Journal of Economics, The RAND Corporation, vol. 28(1), pages 82-106, Spring.
    9. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
    10. Timothy Feddersen & Wolfgang Pesendorfer, 1997. "Voting Behavior and Information Aggregation in Elections with Private Information," Econometrica, Econometric Society, pages 1029-1058.
    11. Potters, J.J.M. & Wit, J., 1996. "Bets and Bids : Favorite-Longshot Bias and Winner's Curse," Discussion Paper 1996-04, Tilburg University, Center for Economic Research.
    12. Eddie Dekel & Michele Piccione, 1997. "On the Equivalence of Simultaneous and Sequential Binary Elections," Discussion Papers 1206, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    13. Christopher Avery & John H. Kagel, 1997. "Second-Price Auctions with Asymmetric Payoffs: An Experimental Investigation," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(3), pages 573-603, September.
    14. Jacobsen, Ben & Potters, Jan & Schram, Arthur & van Winden, Frans & Wit, Jorgen, 2000. "(In)accuracy of a European political stock market: The influence of common value structures," European Economic Review, Elsevier, pages 205-230.
    15. Feddersen, Timothy J & Pesendorfer, Wolfgang, 1996. "The Swing Voter's Curse," American Economic Review, American Economic Association, pages 408-424.
    16. Klemperer, Paul, 1999. " Auction Theory: A Guide to the Literature," Journal of Economic Surveys, Wiley Blackwell, pages 227-286.
    17. repec:cup:apsrev:v:92:y:1998:i:01:p:23-35_20 is not listed on IDEAS
    18. Garvin, Susan & Kagel, John H., 1994. "Learning in common value auctions: Some initial observations," Journal of Economic Behavior & Organization, Elsevier, pages 351-372.
    19. Levin, Dan & Kagel, John H & Richard, Jean-Francois, 1996. "Revenue Effects and Information Processing in English Common Value Auctions," American Economic Review, American Economic Association, pages 442-460.
    20. Klemperer, Paul, 1999. " Auction Theory: A Guide to the Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 13(3), pages 227-86, July.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ecm:emetrp:v:73:y:2005:i:4:p:1137-1173. 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: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum). General contact details of provider: http://edirc.repec.org/data/essssea.html .

    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.

    We have no references for this item. You can help adding them by using 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.