Drug Innovations and Welfare Measures Computed from Market Demand: The Case of Anti-Cholesterol Drugs | Zendy

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Drug Innovations and Welfare Measures Computed from Market Demand: The Case of Anti-Cholesterol Drugs

Author(s) -

Abe Dunn

Publication year - 2012

Publication title -

american economic journal applied economics

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 12.996

H-Index - 82

eISSN - 1945-7782

pISSN - 1945-7790

DOI - 10.1257/app.4.3.167

Subject(s) - economics , investment (military) , quality (philosophy) , index (typography) , price index , product (mathematics) , pace , drug prices , sample (material) , welfare , econometrics , monetary economics , mathematics , computer science , chemistry , market economy , philosophy , geometry , epistemology , chromatography , politics , world wide web , political science , law , geodesy , geography

The pharmaceutical industry is characterized as having substantial investment in R&D and a large number of new product introductions, which poses special problems for price measurement caused by the quality of drug products changing over time. This paper applies recent demand estimation techniques to individual-level data to construct a constant-quality price index for anti-cholesterol drugs. Although the average price for anti-cholesterol drugs does not change over the sample period, I find that the constant-quality price index drops by 27 percent, a pace more in line with our expectations in such a dynamic segment of the industry. (JEL C43, L11, L65, O31)

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