IDEAS home Printed from https://ideas.repec.org/a/taf/applec/v29y1997i9p1179-1190.html
   My bibliography  Save this article

Demand systems and the true subindex of the cost of living for pharmaceuticals

Author

Listed:
  • Michael Baye
  • Robert Maness
  • Steven Wiggins

Abstract

This paper investigates the demand for prescription pharmaceuticals at the retail level. We use complete demand systems to investigate elasticity for major classes of pharmaceuticals. We estimate both a regular and an inverse demand system using a differential version of the Rotterdam model. We find that both systems yield negative, and statistically significant own-price elasticities. The results indicate that pharmaceutical demand curves are not perfectly inelastic as some industry commentators suggest. We use the results of the complete demand system and a variant of a formula developed by Balk (1990) to derive a cost-of-living subindex for retail pharmaceuticals. We find that retail pharmaceutical prices using our index rise faster than wholesale prices, calculated either by the BLS or by the methods developed by Berndt et al.(1993).

Suggested Citation

  • Michael Baye & Robert Maness & Steven Wiggins, 1997. "Demand systems and the true subindex of the cost of living for pharmaceuticals," Applied Economics, Taylor & Francis Journals, vol. 29(9), pages 1179-1190.
    • Handle: RePEc:taf:applec:v:29:y:1997:i:9:p:1179-1190
    DOI: 10.1080/00036849700000009
    as

    Download full text from publisher

    File URL: http://www.tandfonline.com/doi/abs/10.1080/00036849700000009
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/00036849700000009?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Eales, James S. & Unnevehr, Laurian J., 1994. "The inverse almost ideal demand system," European Economic Review, Elsevier, vol. 38(1), pages 101-115, January.
    2. Wiggins, Steven N, 1983. "The Impact of Regulation on Pharmaceutical Research Expenditures: A Dynamic Approach," Economic Inquiry, Western Economic Association International, vol. 21(1), pages 115-128, January.
    3. Balk, Bert M, 1990. "On Calculating Cost-of-Living Index Numbers for Arbitrary Income Levels," Econometrica, Econometric Society, vol. 58(1), pages 75-92, January.
    4. Barten, A. P. & Bettendorf, L. J., 1989. "Price formation of fish : An application of an inverse demand system," European Economic Review, Elsevier, vol. 33(8), pages 1509-1525, October.
    5. Griliches, Zvi & Cockburn, Iain, 1994. "Generics and New Goods in Pharmaceutical Price Indexes," American Economic Review, American Economic Association, vol. 84(5), pages 1213-1232, December.
    6. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-326, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Filippini, M. & Masiero, G. & Moschetti, K., 2009. "Regional consumption of antibiotics: A demand system approach," Economic Modelling, Elsevier, vol. 26(6), pages 1389-1397, November.
    2. L. G. González Ortiz & G. Masiero, 2013. "Disentangling spillover effects of antibiotic consumption: a spatial panel approach," Applied Economics, Taylor & Francis Journals, vol. 45(8), pages 1041-1054, March.
    3. John B. Horowitz & H. Brian Moehring, 2014. "How Economic Development Affects Antibiotic Resistance," Journal for Economic Educators, Middle Tennessee State University, Business and Economic Research Center, vol. 14(1), pages 58-77, Fall.
    4. Niklas Rudholm, 2003. "Competition and substitutability in the Swedish pharmaceuticals market," Applied Economics, Taylor & Francis Journals, vol. 35(14), pages 1609-1617.
    5. Filippini, M. & Heimsch, F. & Masiero, G., 2014. "Antibiotic consumption and the role of dispensing physicians," Regional Science and Urban Economics, Elsevier, vol. 49(C), pages 242-251.
    6. Elamin H. Elbasha, 2003. "Deadweight loss of bacterial resistance due to overtreatment," Health Economics, John Wiley & Sons, Ltd., vol. 12(2), pages 125-138, February.
    7. Massimo Filippini & Giuliano Masiero & Karine Moschetti, 2008. "Dispensing practices and antibiotic use," Quaderni della facoltà di Scienze economiche dell'Università di Lugano 0808, USI Università della Svizzera italiana.
    8. M. Filippini & L. Ortiz & G. Masiero, 2013. "Assessing the impact of national antibiotic campaigns in Europe," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 14(4), pages 587-599, August.
    9. Massimo Filippini & Giuliano Masiero & Karine Moschetti, 2007. "Characteristics of demand for antibiotics in primary care: an almost ideal demand system approach," Quaderni della facoltà di Scienze economiche dell'Università di Lugano 0701, USI Università della Svizzera italiana.
    10. Massimo Filippini & Giuliano Masiero & Karine Moschetti, 2007. "Characteristics of demand for antibiotics in primary care: an almost ideal model," Working Papers 0701, Department of Management, Information and Production Engineering, University of Bergamo.
    11. David Granlund, 2022. "The Price Effects of Competition from Parallel Imports and Therapeutic Alternatives: Using Dynamic Models to Estimate the Causal Effect on the Extensive and Intensive Margins," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 60(1), pages 63-92, February.
    12. Atella, Vincenzo, 2000. "Drug cost containment policies in Italy: are they really effective in the long-run?: The case of minimum reference price," Health Policy, Elsevier, vol. 50(3), pages 197-218, January.
    13. Filippini, Massimo & Masiero, Giuliano & Moschetti, Karine, 2006. "Socioeconomic determinants of regional differences in outpatient antibiotic consumption: Evidence from Switzerland," Health Policy, Elsevier, vol. 78(1), pages 77-92, August.
    14. Giuliano Masiero & Massimo Filippini & Matus Ferech & Herman Goossens, 2007. "Determinants of outpatient antibiotic consumption in Europe: bacterial resistance and drug prescribers," Quaderni della facoltà di Scienze economiche dell'Università di Lugano 0702, USI Università della Svizzera italiana.
    15. Massimo Filippini & Giuliano Masiero & Karine Moschetti, 2009. "Physician dispensing and antibiotic prescriptions," Quaderni della facoltà di Scienze economiche dell'Università di Lugano 0908, USI Università della Svizzera italiana.
    16. Giuliano Masiero & Massimo Filippini & Matus Ferech & Herman Goossens, 2010. "Socioeconomic determinants of outpatient antibiotic use in Europe," International Journal of Public Health, Springer;Swiss School of Public Health (SSPH+), vol. 55(5), pages 469-478, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sean Pascoe & Peggy Schrobback & Eriko Hoshino & Robert Curtotti, 2023. "Impact of changes in imports and farmed salmon on wild-caught fish prices in Australia," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 50(2), pages 335-359.
    2. Anonymous & Bosch, Darrell J., 2013. "Table of contents," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 45(01), February.
    3. Holt, Matthew T., 2002. "Inverse demand systems and choice of functional form," European Economic Review, Elsevier, vol. 46(1), pages 117-142, January.
    4. Gary Wong & Qiao Yu, 2001. "Inverse Demand Systems for Composite Liquid Assets: Evidence from China," School of Economics and Finance Discussion Papers and Working Papers Series 097, School of Economics and Finance, Queensland University of Technology.
    5. Chris Moore & Charles Griffiths, 2018. "Welfare analysis in a two-stage inverse demand model: an application to harvest changes in the Chesapeake Bay," Empirical Economics, Springer, vol. 55(3), pages 1181-1206, November.
    6. Marsh, Thomas L. & Piggott, Nicholas E., 2013. "Measuring Pre-Commited Quantities Through Consumer Price Formation," 2013 Conference (57th), February 5-8, 2013, Sydney, Australia 152165, Australian Agricultural and Resource Economics Society.
    7. Yeboah, Godfred & Maynard, Leigh J., 2004. "The Impact Of Bse, Fmd, And U.S. Export Promotion Expenditures On Japanese Meat Demand," 2004 Annual meeting, August 1-4, Denver, CO 19978, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    8. Matthew T. Holt & Joseph V. Balagtas, 2009. "Estimating Structural Change with Smooth Transition Regressions: An Application to Meat Demand," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(5), pages 1424-1431.
    9. Steen, Marie, 2006. "Flower Power at the Dutch Flower Auctions? Application of an Inverse Almost Ideal Demand System," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25441, International Association of Agricultural Economists.
    10. Huang, Pei, 2014. "An Inverse Demand System for Blue Crab in the Chesapeake Bay: Endogeneity and Seasonality," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 169827, Agricultural and Applied Economics Association.
    11. K. K. Gary Wong & Hoanjae Park, 2018. "Consumption dynamics in inverse demand systems: an application to meat and fish demand in Korea," Agricultural Economics, International Association of Agricultural Economists, vol. 49(6), pages 777-786, November.
    12. Peguero, Felipe & Kennedy, P. Lynn & Zapata, Hector O., 2018. "A Generalized Dynamic Inverse AIDS Model for Fresh Fruits and Vegetables: An Application to the U.S. Bell Pepper Industry," 2018 Annual Meeting, February 2-6, 2018, Jacksonville, Florida 266686, Southern Agricultural Economics Association.
    13. Hovhannisyan, Vardges & Bozic, Marin, 2013. "A Benefit-Function Approach to Studying Market Power: An Application to the U.S. Yogurt Market," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 38(2), pages 1-15, August.
    14. Jason H. Grant & Dayton M. Lambert & Kenneth A. Foster, 2010. "A Seasonal Inverse Almost Ideal Demand System for North American Fresh Tomatoes," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 58(2), pages 215-234, June.
    15. Toshinobu Matsuda, 2005. "Differential Demand Systems: A Further Look at Barten's Synthesis," Southern Economic Journal, John Wiley & Sons, vol. 71(3), pages 607-619, January.
    16. Giancarlo Moschini & Vissa Anuradha, 1993. "Flexible Specification of Mixed Demand Systems," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 75(1), pages 1-9.
    17. Kira Lancker & Julia Bronnmann, 2022. "Substitution Preferences for Fish in Senegal," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 82(4), pages 1015-1045, August.
    18. Moschini, GianCarlo & Vissa, Anuradha, 1992. "A Linear Inverse Demand System," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 17(2), pages 1-9, December.
    19. Clements, Kenneth W. & Gao, Grace, 2015. "The Rotterdam demand model half a century on," Economic Modelling, Elsevier, vol. 49(C), pages 91-103.
    20. Francesco Andreoli & Alessandra Michelangeli, 2014. "Welfare Measures to Assess Urban Quality of Life," Working Papers 278, University of Milano-Bicocca, Department of Economics, revised Jun 2014.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:applec:v:29:y:1997:i:9:p:1179-1190. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RAEC20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.