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Price Sensitivity of Demand for Prescription Drugs: Exploiting a Regression Kink Design

Author

Listed:
  • Marianne Simonsen

    (School of Economics and Management, Aarhus University, Denmark)

  • Lars Skipper

    (Aarhus School of Business, Aarhus University, Denmark)

  • Niels Skipper

    (School of Economics and Management, Aarhus University, Denmark)

Abstract

This paper investigates price sensitivity of demand for prescription drugs using drug purchase records for at 20% random sample of the Danish population. We identify price responsiveness by exploiting exogenous variation in prices caused by kinked reimbursement schemes and implement a regression kink design. Thus, within a unifying framework we uncover price sensitivity for different subpopulations and types of drugs. The results suggest low average price responsiveness with corresponding price elasticities ranging from -0.08 to -0.25, implying that demand is inelastic. Individuals with lower education and income are, however, more responsive to the price. Also, essential drugs that prevent deterioration in health and prolong life have lower associated average price sensitivity.

Suggested Citation

  • Marianne Simonsen & Lars Skipper & Niels Skipper, 2010. "Price Sensitivity of Demand for Prescription Drugs: Exploiting a Regression Kink Design," Economics Working Papers 2010-03, Department of Economics and Business Economics, Aarhus University.
    • Handle: RePEc:aah:aarhec:2010-03
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    References listed on IDEAS

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    More about this item

    Keywords

    Prescription drugs; price; reimbursement schemes; regression kink design;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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