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Empirical Implications of Physician Authority in Pharmaceutical Decisionmaking

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  • Scott Stern
  • Manuel Trajtenberg

Abstract

This paper studies the consequences of physician authority on pharmaceutical prescribing. Physicians engage in a costly process of particular conditions and characteristics. The relative efficiency of this matching process results from the diagnostic skill of the physician along with the investments made by the doctor in learning about different drugs. While the underlying level of physician skill or knowledge cannot be observed, differences among physicians in terms of these attributes are reflected in their prescribing behavior. We provide evidence for two major findings regarding the exercise of physician authority in this context. First, there is substantial variation in the degree to which physician prescribing is concentrated (i.e., some physicians prescribe a more diverse portfolio of drugs than others). Second, this concentration is correlated with observable drug characteristics. In particular, concentrated prescribers tend to prescribe drugs with high levels of advertising, low prices, and high (lagged) market shares. Our empirical results provide evidence for the importance of both physician effort and diagnostic ability in the prescribing process. In particular, physicians who differentiate among their patients more finely are more likely to have less concentrated prescribing portfolios and to be less sensitive to information sources which promote the use of drugs for the

Suggested Citation

  • Scott Stern & Manuel Trajtenberg, 1998. "Empirical Implications of Physician Authority in Pharmaceutical Decisionmaking," NBER Working Papers 6851, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:6851
    Note: AG HC
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    References listed on IDEAS

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    1. Sara Ellison Fisher & Iain Cockburn & Zvi Griliches & Jerry Hausman, 1997. "Characteristics of Demand for Pharmaceutical Products: An Examination of Four Cephalosporins," RAND Journal of Economics, The RAND Corporation, vol. 28(3), pages 426-446, Autumn.
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    6. Jonathan Gruber & Maria Owings, 1996. "Physician Financial Incentives and Cesarean Section Delivery," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 99-123, Spring.
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    Cited by:

    1. Jennifer Rice, 2009. "The influence of managed care on generic prescribing rates: an analysis of HMO physicians," Applied Economics, Taylor & Francis Journals, vol. 43(7), pages 787-796.
    2. John Cawley & John A. Rizzo, 2005. "The Competitive Effects of Drug Withdrawals," NBER Working Papers 11223, National Bureau of Economic Research, Inc.
    3. Puneet Manchanda & Ying Xie & Nara Youn, 2008. "The Role of Targeted Communication and Contagion in Product Adoption," Marketing Science, INFORMS, vol. 27(6), pages 961-976, 11-12.
    4. Karine Lamiraud & Pierre-Yves Geoffard, 2007. "Therapeutic non-adherence: a rational behavior revealing patient preferences?," Health Economics, John Wiley & Sons, Ltd., vol. 16(11), pages 1185-1204.
    5. Lim, Kwanghui, 2004. "The relationship between research and innovation in the semiconductor and pharmaceutical industries (1981-1997)," Research Policy, Elsevier, vol. 33(2), pages 287-321, March.
    6. Paul Ellickson & Scott Stern & Manuel Trajtenberg, 2001. "Patient Welfare and Patient Compliance -- An Empirical Framework for Measuring the Benefits from Pharmaceutical Innovation," NBER Chapters,in: Medical Care Output and Productivity, pages 539-564 National Bureau of Economic Research, Inc.
    7. Sorisio, Enrico & Strøm, Steinar, 2006. "Innovation and market dynamics in the EPO market," Memorandum 12/2006, Oslo University, Department of Economics.
    8. Glenn Ellison, 2002. "The Slowdown of the Economics Publishing Process," Journal of Political Economy, University of Chicago Press, vol. 110(5), pages 947-993, October.
    9. Balsa, Ana I. & McGuire, Thomas G., 2001. "Statistical discrimination in health care," Journal of Health Economics, Elsevier, vol. 20(6), pages 881-907, November.
    10. Paraponaris, A. & Verger, P. & Desquins, B. & Villani, P. & Bouvenot, G. & Rochaix, L. & Gourheux, J. C. & Moatti, J. P. AU -, 2004. "Delivering generics without regulatory incentives?: Empirical evidence from French general practitioners about willingness to prescribe international non-proprietary names," Health Policy, Elsevier, vol. 70(1), pages 23-32, October.
    11. Toshiaki Iizuka, 2007. "Experts' agency problems: evidence from the prescription drug market in Japan," RAND Journal of Economics, RAND Corporation, vol. 38(3), pages 844-862, September.

    More about this item

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets

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