Experts' Agency Problems: Evidence from the Prescription Drug Market in Japan

26 Pages Posted: 7 Dec 2006

Abstract

This paper examines the physician-patient agency relationship in the context of the prescription drug market in Japan. In this market, physicians often both prescribe and dispense drugs and can pocket profits in so doing. A concern is that, due to the incentive created by the markup, physicians' prescription decisions may be distorted. Empirical results using anti-hypertensive drugs suggest that physicians' prescription choices are influenced by the markup. However, physicians are also sensitive to the patient's out-of-pocket costs. Overall, although the markup affects prescription choices, physicians appear more responsive to the patient's out-of-pocket costs than their own profits from the markup.

Keywords: principal agent problem, pharmaceutical, physician induced demand

JEL Classification: L14, D82, L80, I11

Suggested Citation

Iizuka, Toshiaki, Experts' Agency Problems: Evidence from the Prescription Drug Market in Japan. RAND Journal of Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=949668

Toshiaki Iizuka (Contact Author)

University of Tokyo ( email )

7-3-1 Hongo, Bunkyo-ku
Tokyo 113-0033
Japan

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