Economic Incentives and Contracts: The Use of Psychotropic Medications

Contemporary Economic Policy, Vol. 26, Issue 1, pp. 49-72, January 2008

24 Pages Posted: 18 Jan 2008

See all articles by Davina C. Ling

Davina C. Ling

affiliation not provided to SSRN

Ernst R. Berndt

affiliation not provided to SSRN

Richard G. Frank

Harvard Medical School; National Bureau of Economic Research (NBER)

Abstract

The advent of novel psychotropic medications has revolutionized treatments for mental illnesses over the past few decades. Concurrently, changes in mental health coverage, particularly for Medicaid patients, created economic incentives for insurance carriers to shift costs and to encourage the use of psychotropic drugs. To quantify these effects, based on the framework in Griliches seminal study on hybrid corn, we estimate logistic diffusion models using a longitudinal data set on Medicaid drug utilization. We find that financial incentives played a significant role in encouraging use of new medications that have lower physician specialty skill requirements.

JEL Classification: O30, O33, I18, L14

Suggested Citation

LING, DAVINA C. and BERNDT, ERNST R. and Frank, Richard G., Economic Incentives and Contracts: The Use of Psychotropic Medications. Contemporary Economic Policy, Vol. 26, Issue 1, pp. 49-72, January 2008, Available at SSRN: https://ssrn.com/abstract=1084209 or http://dx.doi.org/10.1111/j.1465-7287.2007.00063.x

DAVINA C. LING (Contact Author)

affiliation not provided to SSRN

No Address Available

ERNST R. BERNDT

affiliation not provided to SSRN

No Address Available

Richard G. Frank

Harvard Medical School ( email )

Department of Health Care Policy
Boston, MA 02115
United States
617-432-0178 (Phone)
617-432-1219 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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