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Assessing Consumer Gains from a Drug Price Control Policy in the U.S

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  • Rexford Santerre
  • John A. Vernon

Abstract

This paper uses national data for the period 1960 to 2000 to estimate an aggregate private consumer demand for pharmaceuticals in the U.S. The estimated demand curve is then used to simulate the value of consumer surplus gains from a drug price control regime that holds drug price increases to the same rate of growth as the general consumer price level over the time period from 1981 to 2000. Based upon a 7 percent real interest rate, we find that the future value of consumer surplus gains from this hypothetical policy would have been $319 billion at the end of 2000. According to a recent study, that same drug price control regime would have led to 198 fewer new drugs being brought to the U.S. market over this period. Therefore, we approximate that the average social opportunity cost per drug developed during this period to be approximately $1.6 billion. Recent research on the value of pharmaceuticals suggests that the social benefits of a new drug may be far greater than this estimated social opportunity cost.

Suggested Citation

  • Rexford Santerre & John A. Vernon, 2005. "Assessing Consumer Gains from a Drug Price Control Policy in the U.S," NBER Working Papers 11139, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:11139
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    File URL: http://www.nber.org/papers/w11139.pdf
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    References listed on IDEAS

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    1. repec:reg:rpubli:388 is not listed on IDEAS
    2. Berndt, Ernst R & Griliches, Zvi & Rosett, Joshua G, 1993. "Auditing the Producer Price Index: Micro Evidence from Prescription Pharamceutical Preparations," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(3), pages 251-264, July.
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    Cited by:

    1. Nathalie Fombaron & Carine Milcent, 2007. "The distortionary effect of health insurance on health demand," Working Papers halshs-00587713, HAL.

    More about this item

    JEL classification:

    • I1 - Health, Education, and Welfare - - Health
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • K2 - Law and Economics - - Regulation and Business Law

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