Assessing Consumer Gains from a Drug Price Control Policy in the U.S

32 Pages Posted: 25 May 2006 Last revised: 9 Jun 2007

See all articles by Rexford E. Santerre

Rexford E. Santerre

University of Connecticut - Department of Finance

John A. Vernon

University of North Carolina (UNC) at Chapel Hill; National Bureau of Economic Research (NBER)

Date Written: February 2005

Abstract

This paper uses national data for the period 1960 to 2000 to estimate an aggregate private consumer demand for pharmaceuticals in the U.S. The estimated demand curve is then used to simulate the value of consumer surplus gains from a drug price control regime that holds drug price increases to the same rate of growth as the general consumer price level over the time period from 1981 to 2000. Based upon a 7 percent real interest rate, we find that the future value of consumer surplus gains from this hypothetical policy would have been $319 billion at the end of 2000. According to a recent study, that same drug price control regime would have led to 198 fewer new drugs being brought to the U.S. market over this period. Therefore, we approximate that the average social opportunity cost per drug developed during this period to be approximately $1.6 billion. Recent research on the value of pharmaceuticals suggests that the social benefits of a new drug may be far greater than this estimated social opportunity cost.

Suggested Citation

Santerre, Rexford E. and Vernon, John A., Assessing Consumer Gains from a Drug Price Control Policy in the U.S (February 2005). NBER Working Paper No. w11139, Available at SSRN: https://ssrn.com/abstract=666346

Rexford E. Santerre

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States

John A. Vernon (Contact Author)

University of North Carolina (UNC) at Chapel Hill ( email )

102 Ridge Road
Chapel Hill, NC NC 27514
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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