Abstract

http://ssrn.com/abstract=147929
 
 

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Uncertainty and Experimentation in Pharmaceutical Demand: Anti-Ulcer Drugs


Gregory S. Crawford


University of Zurich - Department of Economics

Matthew Shum


Johns Hopkins University - Department of Economics

December 4, 1998

Duke Economics Working Paper No. 98-11

Abstract:     
Due to differences in the effectiveness and side effects of different drugs, uncertainty is an important component of prescription drug choice. This uncertainty can cause patients and doctors to experiment with different drugs until they find a good match. In this paper, we specify and estimate a dynamic model of pharmaceutical choice under uncertainty in which patients choose a drug in order to minimize the present discounted value of costs associated with treatment in the anti-ulcer drug market. We find strong evidence that this market is split into {\em casual} patients for whom uncertainty about drug quality doesn't matter, and {\em serious} patients for whom quality differentials between drugs matter, since a high quality drug can substantially lower the expected treatment length (and therefore the associated expected treatment costs). We consider the implications of these results for innovation in this drug market.

Number of Pages in PDF File: 26

JEL Classification: C15, C61, I11

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Date posted: February 17, 1999  

Suggested Citation

Crawford, Gregory S. and Shum, Matthew, Uncertainty and Experimentation in Pharmaceutical Demand: Anti-Ulcer Drugs (December 4, 1998). Duke Economics Working Paper No. 98-11. Available at SSRN: http://ssrn.com/abstract=147929 or http://dx.doi.org/10.2139/ssrn.147929

Contact Information

Gregory S. Crawford
University of Zurich - Department of Economics ( email )
Schönberggasse 1
Zürich, CH-8001
Switzerland
HOME PAGE: http://www.econ.uzh.ch/faculty/groupcrawford.html
Matthew Shum (Contact Author)
Johns Hopkins University - Department of Economics ( email )
3400 Charles Street
Baltimore, MD 21218-2685
United States
410-516-8828 (Phone)
HOME PAGE: http://www.econ.jhu.edu/people/shum/
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References:  37
Citations:  24
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