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The Price Elasticity of Demand for Pharmaceuticals amongst High Income Older People in Australia: A Natural Experiment

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Abstract

This paper estimates the price elasticity of demand for pharmaceuticals amongst high-income older people in Australia. It exploits a natural experiment by which some people gained entitlement to a price reduction through the Commonwealth Seniors Health Card (CSHC). To the author’s knowledge, this is the first study of the price elasticity of demand for pharmaceuticals amongst older people that draws on a natural experiment with a control group. The preferred model is a nonlinear Instrumental Variable (IV) difference-in-difference regression, estimated on nationally representative repeated cross sectional survey data using the Generalised Method of Moments. No significant evidence is found for endogenous card take-up, and so cross-sectional estimates are also considered. Taking all of the results and possible sources of bias into account, the ‘headline’ estimate is -0.1, implying that quantity demanded is not highly responsive to price

Suggested Citation

  • Siminski, Peter, 2008. "The Price Elasticity of Demand for Pharmaceuticals amongst High Income Older People in Australia: A Natural Experiment," Economics Working Papers wp08-02, School of Economics, University of Wollongong, NSW, Australia.
  • Handle: RePEc:uow:depec1:wp08-02
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    File URL: http://www.uow.edu.au/content/groups/public/@web/@commerce/@econ/documents/web/uow042786.pdf
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    Keywords

    price elasticity; pharmaceuticals; Australia;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets

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