Price Sensitivity of Demand for Prescription Drugs: Exploiting a Regression Kink Design
Univ. of Aarhus Dept. of Economics Working Paper No. 2010-3
47 Pages Posted: 27 Jan 2010
Date Written: January 15, 2010
This paper investigates price sensitivity of demand for prescription drugs using drug purchase records for at 20% random sample of the Danish population. We identify price responsiveness by exploiting exogenous variation in prices caused by kinked reimbursement schemes and implement a regression kink design. Thus, within a unifying framework we uncover price sensitivity for different subpopulations and types of drugs. The results suggest low average price responsiveness with corresponding price elasticities ranging from -0.08 to -0.25, implying that demand is inelastic. Individuals with lower education and income are, however, more responsive to the price. Also, essential drugs that prevent deterioration in health and prolong life have lower associated average price sensitivity.
Keywords: Prescription drugs, price, reimbursement schemes, regression kink design
JEL Classification: I11, I18
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