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American Economic Review: Vol. 102 No. 6 (October 2012)

AER Volume. 102, Issue 6 | Previous ArticleNext Article

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Physician Agency and Adoption of Generic Pharmaceuticals

Article Citation

Iizuka, Toshiaki. 2012. "Physician Agency and Adoption of Generic Pharmaceuticals." American Economic Review, 102(6): 2826-58.

DOI: 10.1257/aer.102.6.2826

Abstract

I examine physician agency in health care services in the context of the choice between brand-name and generic pharmaceuticals. I examine micro-panel data from Japan, where physicians can legally make profits by prescribing and dispensing drugs. The results indicate that physicians often fail to internalize patient costs, explaining why cheaper generics are infrequently adopted. Doctors respond to markup differentials between the two versions, indicating another agency problem. However, generics' markup advantages are shortlived, which limits their impact on increasing generic adoption. Additionally, state dependence and heterogeneous doctor preferences affected generics' adoption. Policy makers can target these factors to improve static efficiency. (JEL D82, I11, J44, L65)

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Download Data Set (140.71 KB) | Online Appendix (209.68 KB)

Authors

Iizuka, Toshiaki (U Tokyo)

JEL Classifications

D82: Asymmetric and Private Information; Mechanism Design
I11: Analysis of Health Care Markets
J44: Professional Labor Markets; Occupational Licensing
L65: Chemicals; Rubber; Drugs; Biotechnology