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

See all articles by Marianne Simonsen

Marianne Simonsen

Aarhus University - Department of Economics and Business

Lars Skipper

Aarhus University - Department of Economics

Niels Skipper

Aarhus University

Date Written: January 15, 2010

Abstract

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

Suggested Citation

Simonsen, Marianne and Skipper, Lars and Skipper, Niels, Price Sensitivity of Demand for Prescription Drugs: Exploiting a Regression Kink Design (January 15, 2010). Univ. of Aarhus Dept. of Economics Working Paper No. 2010-3. Available at SSRN: https://ssrn.com/abstract=1537060 or http://dx.doi.org/10.2139/ssrn.1537060

Marianne Simonsen (Contact Author)

Aarhus University - Department of Economics and Business ( email )

Building 326
DK-8000 Aarhus C
Denmark
+45 8942 1599 (Phone)

Lars Skipper

Aarhus University - Department of Economics ( email )

Universitetsparken
Building 350
DK-8000 Aarhus C
Denmark
+45 8942 1589 (Phone)
+45 8613 6334 (Fax)

Niels Skipper

Aarhus University ( email )

Nordre Ringgade 1
DK-8000 Aarhus C, 8000
Denmark

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