IDEAS home Printed from https://ideas.repec.org/a/kap/atlecj/v46y2018i4d10.1007_s11293-018-9600-z.html
   My bibliography  Save this article

Income Elasticity Decomposition Models and Determinants of U.S. Pharmaceutical Expenditures

Author

Listed:
  • Gregory G. Lubiani

    (Texas A&M University – Commerce)

  • Albert A. Okunade

    (University of Memphis)

  • Weiwei Chen

    (Florida International University)

Abstract

Prescription drugs are the third largest component of U.S. healthcare spending, and quickly growing. This novel study provides greater information on consumer behavior in the market for prescription drugs, and how that behavior may vary due to fluctuating economic conditions, using an annual panel dataset. Specifically, the research presented applied the income elasticity decomposition methodology to prescription drug expenditures, deriving both its quality and quantity components. Per capita gross domestic product and median home values were used interchangeably to test whether alternative income concepts affect income elasticity estimates. The system generalized method of moments three-stage least squares estimation results revealed that the: (a) 0.647 short-run income elasticity comprises 0.453 and 0.194 in quantity and quality components; (b) long-run income elasticity estimate of 0.167 has 0.027 and 0.140 quantity and quality components. Pharmaceuticals were found to behave as a necessity and normal good with significant tendencies for long-run consumption shifts towards quality. Further illustrated are supply and demand-side impacts, with policy implications for Medicare and Medicaid programs, among others.

Suggested Citation

  • Gregory G. Lubiani & Albert A. Okunade & Weiwei Chen, 2018. "Income Elasticity Decomposition Models and Determinants of U.S. Pharmaceutical Expenditures," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 46(4), pages 389-403, December.
    • Handle: RePEc:kap:atlecj:v:46:y:2018:i:4:d:10.1007_s11293-018-9600-z
    DOI: 10.1007/s11293-018-9600-z
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s11293-018-9600-z
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s11293-018-9600-z?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    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. Christine Huttin, 2000. "A cluster analysis on income elasticity variations and US pharmaceutical expenditures," Applied Economics, Taylor & Francis Journals, vol. 32(10), pages 1241-1247.
    2. Frank Windmeijer & Eric de Laat & Rudy Douven & Esther Mot, 2006. "Pharmaceutical promotion and GP prescription behaviour," Health Economics, John Wiley & Sons, Ltd., vol. 15(1), pages 5-18, January.
    3. ., 2015. "Traditional methods for local and regional economic analysis," Chapters, in: Introduction to Regional Economic Development, chapter 7, pages 96-137, Edward Elgar Publishing.
    4. Baltagi, Badi H. & Moscone, Francesco, 2010. "Health care expenditure and income in the OECD reconsidered: Evidence from panel data," Economic Modelling, Elsevier, vol. 27(4), pages 804-811, July.
    5. Daron Acemoglu & Amy Finkelstein & Matthew J. Notowidigdo, 2013. "Income and Health Spending: Evidence from Oil Price Shocks," The Review of Economics and Statistics, MIT Press, vol. 95(4), pages 1079-1095, October.
    6. Albert A. Okunade & Chutima Suraratdecha & David A. Benson, 2010. "Determinants of Thailand household healthcare expenditure: the relevance of permanent resources and other correlates," Health Economics, John Wiley & Sons, Ltd., vol. 19(3), pages 365-376, March.
    7. Dhaval Dave & Henry Saffer, 2012. "Impact of Direct-to-Consumer Advertising on Pharmaceutical Prices and Demand," Southern Economic Journal, John Wiley & Sons, vol. 79(1), pages 97-126, July.
    8. Jesús Clemente & Carmen Marcuello & Antonio Montañés, 2008. "Pharmaceutical expenditure, total health‐care expenditure and GDP," Health Economics, John Wiley & Sons, Ltd., vol. 17(10), pages 1187-1206, October.
    9. Jorge Mestre-Ferrandiz;Jon Sussex;Adrian Towse, 2012. "The R&D Cost of a New Medicine," Monograph 000135, Office of Health Economics.
    10. Edward N. Wolff, 2014. "Household wealth trends in the United States, 1983–2010," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 30(1), pages 21-43.
    11. Weiwei Chen & Albert Okunade & Gregory G. Lubiani, 2014. "Quality–Quantity Decomposition Of Income Elasticity Of U.S. Hospital Care Expenditure Using State‐Level Panel Data," Health Economics, John Wiley & Sons, Ltd., vol. 23(11), pages 1340-1352, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mehdi Barati & Hadiseh Fariditavana, 2020. "Asymmetric effect of income on the US healthcare expenditure: evidence from the nonlinear autoregressive distributed lag (ARDL) approach," Empirical Economics, Springer, vol. 58(4), pages 1979-2008, April.
    2. Stefan Schiman-Vukan, 2013. "Langfristige Perspektiven der öffentlichen Finanzen in Österreich. Projektionen des Staatshaushalts bis 2050," WIFO Studies, WIFO, number 46670, August.
    3. Guglielmo Maria Caporale & Juncal Cunado & Luis A. Gil-Alana & Rangan Gupta, 2018. "The relationship between healthcare expenditure and disposable personal income in the US states: a fractional integration and cointegration analysis," Empirical Economics, Springer, vol. 55(3), pages 913-935, November.
    4. Eugene Kouassi & Oluyele Akinkugbe & Noni Oratile Kutlo & J. M. Bosson Brou, 2018. "Health expenditure and growth dynamics in the SADC region: evidence from non-stationary panel data with cross section dependence and unobserved heterogeneity," International Journal of Health Economics and Management, Springer, vol. 18(1), pages 47-66, March.
    5. Stefan Schiman-Vukan, 2022. "Langfristige Perspektiven der öffentlichen Finanzen in Österreich," WIFO Studies, WIFO, number 70395, April.
    6. Mujaheed Shaikh & Afschin Gandjour, 2019. "Pharmaceutical expenditure and gross domestic product: Evidence of simultaneous effects using a two‐step instrumental variables strategy," Health Economics, John Wiley & Sons, Ltd., vol. 28(1), pages 101-122, January.
    7. Alejandro F. Rodríguez & M. Nieves Valdés, 2019. "Health care expenditures and GDP in Latin American and OECD countries: a comparison using a panel cointegration approach," International Journal of Health Economics and Management, Springer, vol. 19(2), pages 115-153, June.
    8. Stefan Schiman-Vukan, 2016. "Langfristige Perspektiven der öffentlichen Finanzen in Österreich. Projektionen des Staatshaushalts bis 2060," WIFO Studies, WIFO, number 58802, August.
    9. Badi H. Baltagi & Raffaele Lagravinese & Francesco Moscone & Elisa Tosetti, 2017. "Health Care Expenditure and Income: A Global Perspective," Health Economics, John Wiley & Sons, Ltd., vol. 26(7), pages 863-874, July.
    10. Katharina Hauck & Xiaohui Zhang, 2016. "Heterogeneity in the Effect of Common Shocks on Healthcare Expenditure Growth," Health Economics, John Wiley & Sons, Ltd., vol. 25(9), pages 1090-1103, September.
    11. Vasudeva N. R. Murthy & Natalya Ketenci, 2017. "Is technology still a major driver of health expenditure in the United States? Evidence from cointegration analysis with multiple structural breaks," International Journal of Health Economics and Management, Springer, vol. 17(1), pages 29-50, March.
    12. Felipa de Mello-Sampayo & Sofia de Sousa-Vale, 2014. "Financing Health Care Expenditure in the OECD Countries: Evidence from a Heterogeneous, Cross-Sectional Dependent Panel," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 61(2), pages 207-225.
    13. Héctor Bellido & Lorena Olmos & Juan Antonio Román-Aso, 2019. "Do political factors influence public health expenditures? Evidence pre- and post-great recession," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 20(3), pages 455-474, April.
    14. Roger D. Congleton & Alberto Batinti & Rinaldo Pietratonio, 2017. "The Electoral Politics and the Evolution of Complex Healthcare Systems," Kyklos, Wiley Blackwell, vol. 70(4), pages 483-510, November.
    15. Mulatu F. Zerihun & Juncal Cunado & Rangan Gupta, 2017. "Are Health Care Expenditures and Personal Disposable Income Characterised by Asymmetric Behaviour? Evidence from US State-Level Data," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 131(2), pages 527-542, March.
    16. Keegan, Conor & Brick, Aoife & Bergin, Adele & Wren, Maev-Ann & Whyte, Richard & Henry, Edward, 2020. "Projections of expenditure for public hospitals in Ireland, 2018–2035, based on the Hippocrates Model," Research Series, Economic and Social Research Institute (ESRI), number RS117.
    17. Christine de la Maisonneuve & Rodrigo Moreno‐Serra & Fabrice Murtin & Joaquim Oliveira Martins, 2017. "The Role of Policy and Institutions on Health Spending," Health Economics, John Wiley & Sons, Ltd., vol. 26(7), pages 834-843, July.
    18. Braendle, Thomas & Colombier, Carsten, 2017. "Healthcare expenditure projections up to 2045," MPRA Paper 104737, University Library of Munich, Germany.
    19. Colombier, Carsten & Braendle, Thomas, 2022. "Healthcare expenditure projections up to 2050: ageing and the COVID-19 crisis," MPRA Paper 120659, University Library of Munich, Germany.
    20. Murthy, Vasudeva N.R. & Okunade, Albert A., 2016. "Determinants of U.S. health expenditure: Evidence from autoregressive distributed lag (ARDL) approach to cointegration," Economic Modelling, Elsevier, vol. 59(C), pages 67-73.

    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:kap:atlecj:v:46:y:2018:i:4:d:10.1007_s11293-018-9600-z. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.