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Do Cost-Sharing and Entry Deregulation Curb Pharmaceutical Innovation?

43 Pages Posted: 18 May 2011  

Volker Grossmann

University of Fribourg - Faculty of Economics and Social Science; Institute for the Study of Labor (IZA); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: April 29, 2011

Abstract

This paper examines the role of both cost-sharing schemes in health insurance systems and entry regulation for pharmaceutical R&D expenditure, drug prices, aggregate productivity, and income. The analysis suggests that both an increase in the coinsurance rate and stricter price regulations adversely affect R&D spending in the pharmaceutical sector. In contrast, entry deregulation may lead to quality-improvements of pharmaceuticals, despite reducing price-setting power of pharmaceutical companies. Extension to an endogenous growth context suggests that, when individual labor supply depends on health status, both cost-sharing and entry barriers in the pharmaceutical sector also affect aggregate productivity and wage rates.

Keywords: aggregate productivity, cost-sharing, entry deregulation, health insurance, pharmaceutical innovation

JEL Classification: I10, L10, O30

Suggested Citation

Grossmann, Volker, Do Cost-Sharing and Entry Deregulation Curb Pharmaceutical Innovation? (April 29, 2011). CESifo Working Paper Series No. 3439. Available at SSRN: https://ssrn.com/abstract=1837311

Volker Grossmann (Contact Author)

University of Fribourg - Faculty of Economics and Social Science ( email )

Fribourg, CH 1700
Switzerland

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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