Pharmaceutical Industry, Drug Quality and Regulation: Evidence from US and Italy / Vincenzo Atella, Jay Bhattacharya, Lorenzo Carbonari.

Format:

Book

Author/Creator:

Atella, Vincenzo.

Contributor:

National Bureau of Economic Research.

Bhattacharya, Jay.

Carbonari, Lorenzo.

Series:

Working Paper Series (National Bureau of Economic Research) no. w14567.

NBER working paper series no. w14567

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Pharmaceutical Industry, Drug Quality and Regulation

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2008.

Summary:

This paper examines the relationship between drug price and drug quality and how it varies across two of the most common regulatory regimes in the pharmaceutical market: minimum efficacy standards (MES) and a mix of minimum efficacy standards and price control mechanisms (MES+PC). Through a simple model of adverse selection we model the interaction between firms, heterogeneous buyers and the regulator. The theoretical analysis provides two results. First, an MES regime provides greater incentives to produce high quality drugs. Second, an MES+PC mix reduces the difference in price between the highest and lowest quality drugs on the market. The empirical analysis based on US and Italian data corroborates these results.

Notes:

Print version record

December 2008.