Income and the Use of Prescription Drugs for Near Retirement Individuals

Aarhus University School of Economics and Management Working Paper No. 2010-11

34 Pages Posted: 3 Sep 2010

See all articles by Søren Leth‐Petersen

Søren Leth‐Petersen

University of Copenhagen - Department of Economics; Centre for Economic Policy Research (CEPR)

Niels Skipper

Aarhus University

Date Written: September 1, 2010

Abstract

Understanding how demand for prescription drugs responds to changes in income is important for assessing the welfare consequences of reforms affecting income. This becomes more imminent as age progresses, because the use of prescription drugs and the associated budgetary burden increases dramatically from about age 55. In this paper we estimate how demand for prescription drugs varies with income for a sample of near retirement individuals. Estimating the prescription drug demand response to income changes is complicated because an important explanatory variable, the health capital, is unobserved, and because demand is potentially dynamic, for example because some drugs are habitual. The analysis is based on a novel panel data set with information about purchase of prescription drug demand for a very large number of Danish individuals over the period 1995-2003. Our preferred model that takes into account the aforementioned complications performs better in an external validation test than models that can be estimated on cross section data. Results indicate that demand does respond to variations in income and that reforms affecting income therefore will affect the use of prescription drugs.

Keywords: Prescription drugs demand, income, near retirement

JEL Classification: I11, I18

Suggested Citation

Leth-Petersen, Soren and Skipper, Niels, Income and the Use of Prescription Drugs for Near Retirement Individuals (September 1, 2010). Aarhus University School of Economics and Management Working Paper No. 2010-11. Available at SSRN: https://ssrn.com/abstract=1669994 or http://dx.doi.org/10.2139/ssrn.1669994

Soren Leth-Petersen

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Niels Skipper (Contact Author)

Aarhus University ( email )

Nordre Ringgade 1
DK-8000 Aarhus C, 8000
Denmark

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