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Incentives to implement personalized medicine under second‐best pricing

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  • Michel Mougeot
  • Florence Naegelen

Abstract

We characterize the socially optimal pricing policy inducing the implementation of personalized medicine. As a benchmark, we analyze the first‐best allocation and the second‐best optimal policy when only one treatment is available. Then, we characterize the optimal policy that a Health Authority can design to induce the firm to bear an investment and testing cost allowing it to tailor treatment to patients' needs. We show how optimal prices increase with treatment quality and effectiveness. We characterize the conditions under which these prices yield higher social welfare than in the benchmark case. Moreover, we address some policy and industrial organization issues and characterize the pricing policy inducing the firm to choose the optimal level of treatment effectiveness.

Suggested Citation

  • Michel Mougeot & Florence Naegelen, 2022. "Incentives to implement personalized medicine under second‐best pricing," Health Economics, John Wiley & Sons, Ltd., vol. 31(11), pages 2411-2424, November.
    • Handle: RePEc:wly:hlthec:v:31:y:2022:i:11:p:2411-2424
    DOI: 10.1002/hec.4588
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    References listed on IDEAS

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    1. Mougeot, Michel & Naegelen, Florence, 2005. "Hospital price regulation and expenditure cap policy," Journal of Health Economics, Elsevier, vol. 24(1), pages 55-72, January.
    2. Bardey, David & Kembou, Samuel & Ventelou, Bruno, 2021. "Physicians’ incentives to adopt personalised medicine: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 191(C), pages 686-713.
    3. Ma, Ching-to Albert, 1994. "Health Care Payment Systems: Cost and Quality Incentives," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 3(1), pages 93-112, Spring.
    4. Stéphane Alcenat & François Maréchal & Florence Naegelen, 2021. "Implementation of personalized medicine in a context of moral hazard and uncertainty about treatment efficacy," International Journal of Health Economics and Management, Springer, vol. 21(1), pages 81-97, March.
    5. Mougeot, Michel & Naegelen, Florence, 2005. "Hospital price regulation and expenditure cap policy," Journal of Health Economics, Elsevier, vol. 24(1), pages 55-72, January.
    6. repec:bla:jemstr:v:3:y:1994:i:1:p:93-112:a is not listed on IDEAS
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    Cited by:

    1. David Bardey & Philippe de Donder & Vera Zaporozhets, 2024. "Economic Incentives to Develop and to Use Diagnostic Tests - A Literature Review," Working Papers hal-04472497, HAL.

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