Experts' Agency Problems: Evidence from the Prescription Drug Market in Japan
26 Pages Posted: 7 Dec 2006
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: Suggested Citation