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Compassion and cost: The dual role of reference pricing

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  • Yesim Köksal, Miyase

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

Abstract

Providing health insurance involves a trade-off between the benefits from risk spreading and the costs due to moral hazard. Focusing on pharmaceuticals consumption, this paper examines theoretically whether reference pricing, requiring individuals to pay the price difference if, in this case, they don’t buy the cheaper parallel imported drug, can ease this trade-off – an issue which has not previously been pointed out in the debate on health insurance. The results indicate that, if individuals are extremely risk-averse, a policy shift from coinsurance to reference pricing would do this by providing more insurance while decreasing moral hazard.

Suggested Citation

  • Yesim Köksal, Miyase, 2011. "Compassion and cost: The dual role of reference pricing," Working Papers in Economics 498, University of Gothenburg, Department of Economics.
    • Handle: RePEc:hhs:gunwpe:0498
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    File URL: http://hdl.handle.net/2077/25499
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    References listed on IDEAS

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    More about this item

    Keywords

    reference pricing; moral hazard; pharmaceuticals; parallel imports;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • I10 - Health, Education, and Welfare - - Health - - - General
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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