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Price Sensitivity of Demand for Prescription Drugs: Exploiting a Regression Kink Design

  • Marianne Simonsen

    ()

    (School of Economics and Management, Aarhus University, Denmark)

  • Lars Skipper

    (Aarhus School of Business, Aarhus University, Denmark)

  • Niels Skipper

    (School of Economics and Management, Aarhus University, Denmark)

This paper investigates price sensitivity of demand for prescription drugs using drug purchase records for at 20% random sample of the Danish population. We identify price responsiveness by exploiting exogenous variation in prices caused by kinked reimbursement schemes and implement a regression kink design. Thus, within a unifying framework we uncover price sensitivity for different subpopulations and types of drugs. The results suggest low average price responsiveness with corresponding price elasticities ranging from -0.08 to -0.25, implying that demand is inelastic. Individuals with lower education and income are, however, more responsive to the price. Also, essential drugs that prevent deterioration in health and prolong life have lower associated average price sensitivity.

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File URL: ftp://ftp.econ.au.dk/afn/wp/10/wp10_03.pdf
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Paper provided by School of Economics and Management, University of Aarhus in its series Economics Working Papers with number 2010-03.

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Length: 45
Date of creation: 15 Jan 2010
Date of revision:
Handle: RePEc:aah:aarhec:2010-03
Contact details of provider: Web page: http://www.econ.au.dk/afn/

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  1. Paul Contoyannis & Jeremiah Hurley & Paul Grootendorst & Sung-Hee Jeon & Robyn Tamblyn, 2005. "Estimating the price elasticity of expenditure for prescription drugs in the presence of non-linear price schedules: an illustration from Quebec, Canada," Health Economics, John Wiley & Sons, Ltd., vol. 14(9), pages 909-923.
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  9. Keeler, Emmett B & Newhouse, Joseph P & Phelps, C E, 1977. "Deductibles and the Demand for Medical Care Services: The Theory of a Consumer Facing a Variable Price Schedule under Uncertainty," Econometrica, Econometric Society, vol. 45(3), pages 641-55, April.
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  14. Moffitt, Robert, 1990. "The Econometrics of Kinked Budget Constraints," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 119-39, Spring.
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