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Gradual Incorporation of Information: Pharmaceutical Stocks and the Evolution of President Clinton's Health Care Reform

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  • Ellison, Sara Fisher
  • Mullin, Wallace P

Abstract

We examine the effect of the evolution of President Clinton's health care reform proposal over January 1992-October 1993 on pharmaceutical stock prices. We identify a 52.3 percent decline in market-adjusted prices, which we then associate with health care reform. Applying a new technique, isotonic regression, we find most of the decline occurred gradually. Much of the decline occurred as the Clinton plan adopted strategies to contain health care costs, including "managed competition" and implicit regulation. Indirect evidence suggests that the wealth lost by pharmaceutical companies may have been largely an anticipated transfer. Our results are relevant to understanding the likely effects of the Clinton plan and more recent proposals. Many other policy changes are marked by gradual public revelation of information, which may not be completely observable by a researcher. Our approach may uncover information about the anticipated effects of policies unavailable from a traditional event study. Copyright 2001 by the University of Chicago.

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  • Ellison, Sara Fisher & Mullin, Wallace P, 2001. "Gradual Incorporation of Information: Pharmaceutical Stocks and the Evolution of President Clinton's Health Care Reform," Journal of Law and Economics, University of Chicago Press, vol. 44(1), pages 89-129, April.
  • Handle: RePEc:ucp:jlawec:v:44:y:2001:i:1:p:89-129
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    File URL: http://dx.doi.org/10.1086/320269
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    References listed on IDEAS

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    1. Mitchell, Mark L & Stafford, Erik, 2000. "Managerial Decisions and Long-Term Stock Price Performance," The Journal of Business, University of Chicago Press, vol. 73(3), pages 287-329, July.
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    1. Joseph H. Golec & John A. Vernon, 2006. "European Pharmaceutical Price Regulation, Firm Profitability, and R&D Spending," NBER Working Papers 12676, National Bureau of Economic Research, Inc.
    2. Sara Fisher Ellison & Catherine Wolfram, 2001. "Pharmaceutical Prices and Political Activity," NBER Working Papers 8482, National Bureau of Economic Research, Inc.
    3. 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.
    4. Croonenbroeck, Carsten & Monaco, Fabrizio Leonardo & Christensen, Mads Julius, 2012. "Does Danish football club Br√łndby swim with the fishes? An application of the reversed news model," Discussion Papers 330, European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics.
    5. Joseph Golec & Shantaram Hegde & John A. Vernon, 2005. "Pharmaceutical Stock Price Reactions to Price Constraint Threats and Firm-Level R&D Spending," NBER Working Papers 11229, National Bureau of Economic Research, Inc.
    6. Vernon, John A. & Golec, Joseph H. & Lutter, Randall & Nardinelli, Clark, 2009. "An exploratory study of FDA new drug review times, prescription drug user fee acts, and R&D spending," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(4), pages 1260-1274, November.
    7. Giaccotto, Carmelo & Santerre, Rexford E & Vernon, John A, 2005. "Drug Prices and Research and Development Investment Behavior in the Pharmaceutical Industry," Journal of Law and Economics, University of Chicago Press, vol. 48(1), pages 195-214, April.
    8. Ayers, Benjamin C & Cloyd, C Bryan & Robinson, John R, 2005. ""Read My Lips . . .": Does the Tax Rhetoric of Presidential Candidates Affect Security Prices?," Journal of Law and Economics, University of Chicago Press, vol. 48(1), pages 125-148, April.
    9. Keith M. Drake & Martha A. Starr & Thomas McGuire, 2014. "Do "Reverse Payment" Settlements of Brand-Generic Patent Disputes in the Pharmaceutical Industry Constitute an Anticompetitive Pay for Delay?," NBER Working Papers 20292, National Bureau of Economic Research, Inc.
    10. Joseph Golec & John Vernon, 2010. "Financial Effects of Pharmaceutical Price Regulation on R&D Spending by EU versus US Firms," PharmacoEconomics, Springer, vol. 28(8), pages 615-628, August.
    11. Gautier, Pieter A. & Siegmann, Arjen & Van Vuuren, Aico, 2009. "Terrorism and attitudes towards minorities: The effect of the Theo van Gogh murder on house prices in Amsterdam," Journal of Urban Economics, Elsevier, vol. 65(2), pages 113-126, March.
    12. Linn, Joshua, 2010. "The effect of cap-and-trade programs on firms' profits: Evidence from the Nitrogen Oxides Budget Trading Program," Journal of Environmental Economics and Management, Elsevier, vol. 59(1), pages 1-14, January.
    13. Stango, Victor, 2003. "Strategic Responses to Regulatory Threat in the Credit Card Market," Journal of Law and Economics, University of Chicago Press, vol. 46(2), pages 427-452, October.
    14. Sara Fisher Ellison & Catherine Wolfram, 2004. "Coordinating on Lower Prices: Pharmaceutical Pricing Under Political Pressure," Economics Working Papers 0048, Institute for Advanced Study, School of Social Science.
    15. Ralph Koijen & Tomas Philipson & Harald Uhlig, 2014. "Financial Health Economics," NBER Working Papers 20075, National Bureau of Economic Research, Inc.

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