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Evaluating Innovation and Moral Hazard in Pharmaceuticals


  • Paris Cleanthous


This paper formulates an empirical methodology that evaluates pharmaceutical innovation in the American antidepressant market by quantifying patient welfare benefits from innovation. While evaluating pharmaceutical innovation in antidepressants, I uncover and address the moral hazard issue that arises due to the existence of prescription drug insurance coverage. A combination of market-level data, drug and patient characteristics are used to estimate demand for all antidepressants between 1980 and 2001. The paper estimates large and varied patient welfare gains due to innovation and helps explain a detected divergence between social and private patient benefits by the existence of insurance.

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  • Paris Cleanthous, 2011. "Evaluating Innovation and Moral Hazard in Pharmaceuticals," University of Cyprus Working Papers in Economics 03-2011, University of Cyprus Department of Economics.
  • Handle: RePEc:ucy:cypeua:03-2011

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    References listed on IDEAS

    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.
    2. Aviv Nevo, 2000. "A Practitioner's Guide to Estimation of Random-Coefficients Logit Models of Demand," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(4), pages 513-548, December.
    3. Frank R. Lichtenberg, 1996. "The Effect of Pharmaceutical Utilization and Innovation on Hospitalization and Mortality," NBER Working Papers 5418, National Bureau of Economic Research, Inc.
    4. 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.
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    Health; Innovation; Moral Hazard; Pharmaceuticals; Welfare;

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