Examining the link between price regulation and pharmaceutical R&D investment
This paper examines the link between price regulation and pharmaceutical research and development (R&D) investment. I identify two mechanisms through which price regulation may exert an influence on R&D: an expected-profit effect and a cash-flow effect. Using established models of the determinants of pharmaceutical R&D, I exploit a unique fact to quantify firm exposure to pharmaceutical price regulation: relative to the rest of the world, the U.S. pharmaceutical market is largely unregulated with respect to price. Using this fact within the context of a system of quasi-structural equations, I simulate how a new policy regulating pharmaceutical prices in the U.S. will affect R&D investment. I find that such a policy will lead to a decline in industry R&D by between 23.4 and 32.7%. This prediction, however, is accompanied by several caveats. Moreover, it says nothing about the implications for social welfare; therefore, these issues are also discussed. Copyright © 2004 John Wiley & Sons, Ltd.
Volume (Year): 14 (2005)
Issue (Month): 1 ()
|Contact details of provider:|| Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/5749|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Henderson, Rebecca. & Cockburn, Iain., 1993. "Scale, scope and spillovers : the determinants of research productivity in ethical drug discovery," Working papers 3629-93., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Hausman, Jerry, 2015.
"Specification tests in econometrics,"
Publishing House "SINERGIA PRESS", vol. 38(2), pages 112-134.
- R. Glenn Hubbard, 1997.
"Capital-Market Imperfections and Investment,"
NBER Working Papers
5996, National Bureau of Economic Research, Inc.
- Berndt, Ernst R., 2000. "International comparisons of pharmaceutical prices: what do we know, and what does it mean?," Journal of Health Economics, Elsevier, vol. 19(2), pages 283-287, March.
- Steven M. Fazzari & R. Glenn Hubbard & BRUCE C. PETERSEN, 1988.
"Financing Constraints and Corporate Investment,"
Brookings Papers on Economic Activity,
Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
- DiMasi, Joseph A. & Hansen, Ronald W. & Grabowski, Henry G., 2003. "The price of innovation: new estimates of drug development costs," Journal of Health Economics, Elsevier, vol. 22(2), pages 151-185, March.
- John Vernon, 2003. "The relationship between price regulation and pharmaceutical profit margins," Applied Economics Letters, Taylor & Francis Journals, vol. 10(8), pages 467-470.
- Bronwyn H. Hall, 1992.
"Investment and Research and Development at the Firm Level: Does the Source of Financing Matter?,"
NBER Working Papers
4096, National Bureau of Economic Research, Inc.
- Hall, Bronwyn H., 1992. "Investment and Research and Development at the Firm Level: Does the Source of Financing Matter?," Department of Economics, Working Paper Series qt5j59j6x3, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Bronwyn H. Hall., 1992. "Investment and Research and Development at the Firm Level: Does the Source of Financing Matter?," Economics Working Papers 92-194, University of California at Berkeley.
- Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc.
- Henry Grabowski & John Vernon, 2000. "The determinants of pharmaceutical research and development expenditures," Journal of Evolutionary Economics, Springer, vol. 10(1), pages 201-215.
When requesting a correction, please mention this item's handle: RePEc:wly:hlthec:v:14:y:2005:i:1:p:1-16. See general information about how to correct material in RePEc.
If references are entirely missing, you can add them using this form.