IDEAS home Printed from https://ideas.repec.org/p/pen/papers/21-012.html

The Economics of the Public Option:Evidence from Local Pharmaceutical Markets

Author

Listed:
  • Juan Pablo Atal

    (University of Pennsylvania)

  • Jose Ignacio Cuesta

    (Stanford University)

  • Felipe Gonzalez

    (Pontificia Universidad Catolica de Chile)

  • Cristobal Otero

    (University of California, Berkeley)

Abstract

We study the economic and political e?ects of competition by state-owned firms, leveraging the decentralized entry of public pharmacies to local markets in Chile around local elections. Public pharmacies sell drugs at a third of private pharmacy prices, because of a stronger upstream bargaining position and downstream market power in the private sector, but are also of lower quality. Exploiting a field experiment and quasi-experimental variation, we show that public pharmacies a?ected consumer shopping behavior, inducing market segmentation and price increases in the private sector. This segmentation created winners and losers, as consumers who switched to public pharmacies benefited, whereas consumers who stayed with private pharmacies were harmed. The countrywide entry of public pharmacies would reduce yearly consumer drug expenditure by 1.6 percent, which outweighs the costs of the policy by 52 percent. Mayors that introduced public pharmacies received more votes in the subsequent election, particularly by the target population of the policy.

Suggested Citation

  • Juan Pablo Atal & Jose Ignacio Cuesta & Felipe Gonzalez & Cristobal Otero, 2021. "The Economics of the Public Option:Evidence from Local Pharmaceutical Markets," PIER Working Paper Archive 21-012, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    • Handle: RePEc:pen:papers:21-012
    as

    Download full text from publisher

    File URL: https://economics.sas.upenn.edu/sites/default/files/filevault/21-012.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. is not listed on IDEAS
    2. repec:osf:osfxxx:pjvgd_v1 is not listed on IDEAS
    3. Shen, Menghan & Liang, Xiaoxia & Wu, Han, 2025. "The impact of bioequivalence regulation on pharmaceutical firm outcomes: Evidence from China," Social Science & Medicine, Elsevier, vol. 380(C).
    4. Gonzalez, Felipe & Prem, Mounu, 2025. "Government Support in Times of Crisis: Transfers and the Road to Socialism," OSF Preprints vnz6d_v1, Center for Open Science.
    5. Pablo Muñoz & Cristóbal Otero, 2025. "Managers and Public Hospital Performance," American Economic Review, American Economic Association, vol. 115(11), pages 4040-4074, November.
    6. Haruo Kakehi & Ryo Nakajima, 2025. "Role of Pharmacists in Generic Pharmaceutical Adoption," Keio-IES Discussion Paper Series 2025-001, Institute for Economics Studies, Keio University.
    7. Christopher Neilson & Michael Dinerstein & Sebastián Otero, 2020. "The Equilibrium Effects of Public Provision in Education Markets: Evidence from a Public School Expansion Policy," Working Papers 645, Princeton University, Department of Economics, Industrial Relations Section..
    8. Ninon Moreau-Kastler, 2025. "Proportional Treatment Effects in Staggered Settings: An Approach for Poisson Pseudo-Maximum Likelihood," Working Papers 031, EU Tax Observatory.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H4 - Public Economics - - Publicly Provided Goods
    • L3 - Industrial Organization - - Nonprofit Organizations and Public Enterprise

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pen:papers:21-012. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Administrator (email available below). General contact details of provider: https://edirc.repec.org/data/deupaus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.