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Economic Incentives And Contracts: The Use Of Psychotropic Medications

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  • DAVINA C. LING
  • ERNST R. BERNDT
  • RICHARD G. FRANK

Abstract

The advent of novel psychotropic medications has revolutionized treatments for mental illnesses over the past few decades. Concurrently, changes in mental health coverage, particularly for Medicaid patients, created economic incentives for insurance carriers to shift costs and to encourage the use of psychotropic drugs. To quantify these effects, based on the framework in Griliches’ seminal study on hybrid corn, we estimate logistic diffusion models using a longitudinal data set on Medicaid drug utilization. We find that financial incentives played a significant role in encouraging use of new medications that have lower physician specialty skill requirements. (JEL O30, O33, I18, L14)

Suggested Citation

  • Davina C. Ling & Ernst R. Berndt & Richard G. Frank, 2008. "Economic Incentives And Contracts: The Use Of Psychotropic Medications," Contemporary Economic Policy, Western Economic Association International, vol. 26(1), pages 49-72, January.
    • Handle: RePEc:bla:coecpo:v:26:y:2008:i:1:p:49-72
    DOI: 10.1111/j.1465-7287.2007.00063.x
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    References listed on IDEAS

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    1. Davina C. Ling & Ernst R. Berndt & Margaret K. Kyle, 2002. "Deregulating Direct-to-Consumer Marketing of Prescription Drugs: Effects on Prescription and Over-the-Counter Product Sales," Journal of Law and Economics, University of Chicago Press, vol. 45(S2), pages 691-723.
    2. Eli Berman & John Bound & Zvi Griliches, 1994. "Changes in the Demand for Skilled Labor within U. S. Manufacturing: Evidence from the Annual Survey of Manufactures," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(2), pages 367-397.
    3. Daron Acemoglu, 2002. "Technical Change, Inequality, and the Labor Market," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 7-72, March.
    4. Claudia Goldin & Lawrence F. Katz, 1998. "The Origins of Technology-Skill Complementarity," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(3), pages 693-732.
    5. David M. Cutler & Ernst R. Berndt, 2001. "Medical Care Output and Productivity," NBER Books, National Bureau of Economic Research, Inc, number cutl01-1.
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    Cited by:

    1. Farasat A. S. Bokhari & Gary M. Fournier, 2013. "Entry in the ADHD drugs market: Welfare impact of generics and me-too's," Journal of Industrial Economics, Wiley Blackwell, vol. 61(2), pages 339-392, June.
    2. Marisa E. Domino, 2012. "Does managed care affect the diffusion of psychotropic medications?," Health Economics, John Wiley & Sons, Ltd., vol. 21(4), pages 428-443, April.

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    More about this item

    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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