To prescribe or not to prescribe : on the regulation of pharmaceuticals in less developed countries

An important source of failure in markets and justification for government intervention in the health sector of LDCs is imperfect information. Pharmaceutical use is one area in which widespread problems have been noted with substantial misuse, improper diagnosis and problems of compliance noted among both the population at large and health care providers, presumably due to a lack of information concerning appropriate use. One possible instrument vis-a-vis the regulation of pharmaceuticals in LDCs is the decision by public health officials to make a particular drug available over the counter (OTC) to consumers or to require a prescription from a licensed professional. The choice is one of balancing two competing risks. On the one hand, allowing self-prescription by the consumers who do not have medical training runs the risk of gross errors of diagnosis and mistaken prescriptions with possibly serious health consequences. On the other hand, requiring the intervention of a skilled professional incurs the risk that the patient does not receive the appropriate, potentially life saving, drug at all. With medical personnel in very short supply in many parts of the developing world, the real cost of visiting licensed medical facilities can be prohibitively high. This paper presents a very general methodology for evaluating the tradeoff between these competing risks.