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American Economic Journal: Applied Economics: Vol. 4 No. 3 (July 2012)

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Drug Innovations and Welfare Measures Computed from Market Demand: The Case of Anti-cholesterol Drugs

Article Citation

Dunn, Abe. 2012. "Drug Innovations and Welfare Measures Computed from Market Demand: The Case of Anti-cholesterol Drugs." American Economic Journal: Applied Economics, 4(3): 167-89.

DOI: 10.1257/app.4.3.167

Abstract

The pharmaceutical industry is characterized as having substantial investment in R&D and a large number of new product introductions, which poses special problems for price measurement caused by the quality of drug products changing over time. This paper applies recent demand estimation techniques to individual-level data to construct a constant-quality price index for anti-cholesterol drugs. Although the average price for anti-cholesterol drugs does not change over the sample period, I find that the constant-quality price index drops by 27 percent, a pace more in line with our expectations in such a dynamic segment of the industry. (JEL C43, L11, L65, O31)

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Authors

Dunn, Abe (US Bureau of Economic Analysis)

JEL Classifications

C43: Index Numbers and Aggregation; Leading indicators
L11: Production, Pricing, and Market Structure; Size Distribution of Firms
L65: Chemicals; Rubber; Drugs; Biotechnology
O31: Innovation and Invention: Processes and Incentives

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