Pharmaceutical Industry, Drug Quality and Regulation: Evidence from Us and Italy

23 Pages Posted: 29 Dec 2008 Last revised: 31 Dec 2008

See all articles by Vincenzo Atella

Vincenzo Atella

University of Rome Tor Vergata - Centre for International Studies on Economic Growth (CEIS); Department of Economics and Finance; University of Rome Tor Vergata - Faculty of Economics

Jay Bhattacharya

Stanford University - Center for Primary Care and Outcomes Research; National Bureau of Economic Research (NBER)

Lorenzo Carbonari

Università di Roma "Tor Vergata"

Multiple version iconThere are 3 versions of this paper

Date Written: December 2008

Abstract

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.

Suggested Citation

Atella, Vincenzo and Bhattacharya, Jayanta and Carbonari, Lorenzo, Pharmaceutical Industry, Drug Quality and Regulation: Evidence from Us and Italy (December 2008). NBER Working Paper No. w14567. Available at SSRN: https://ssrn.com/abstract=1320793

Vincenzo Atella

University of Rome Tor Vergata - Centre for International Studies on Economic Growth (CEIS) ( email )

Via Columbia, 2
Rome, I-00133
Italy
+39 06 72595648 (Phone)

Department of Economics and Finance ( email )

Via Columbia 2
Roma, 00133
Italy

University of Rome Tor Vergata - Faculty of Economics ( email )

Via Columbia n.2
I-00133 Rome, 00133
Italy
+39 06 72595635 (Phone)
+30 06 2020 500 (Fax)

HOME PAGE: http://www.economia.uniroma2.it/sefemeq/professori/atella/

Jayanta Bhattacharya (Contact Author)

Stanford University - Center for Primary Care and Outcomes Research ( email )

Center for Health Policy
179 Encina Commons
Stanford, CA 94305-6019
United States
650-736-0404 (Phone)
650-723-1919 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Lorenzo Carbonari

Università di Roma "Tor Vergata" ( email )

Via Columbia 2
Roma, Lazio 00133
Italy

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