Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/215033 
Year of Publication: 
2019
Series/Report no.: 
CESifo Working Paper No. 8031
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
A non-trivial fraction of people cannot afford to buy pharmaceutical products at unregulated market prices. Therefore, the paper analyzes the public insurance of the pharmaceutical products in terms of price controls and the socially optimal third-degree price discrimination. It characterizes first the Ramsey pricing rule in the absence of insurance and in the case where the producer price has to cover the R&D sunk cost of the firm. Subsequently, conditions for a welfare increasing departure from Ramsey pricing are stated in terms of price regulation and insurance coverage. The resulting outcome is second best. Unlike the earlier views expressed, increased consumption of pharmaceutical products is shown to be welfare increasing in the second best world. As the optimal means-tested insurance, two alternative criteria for vertical equity are examined in the spirit of the Rawlsian view. In the first scheme, the regulator chooses a higher insurance coverage for individuals with their income below a threshold. In the second scheme, the society imputes a social value to low-income patients in terms of the value-added they produce after the treatment. Under both schemes, the threshold is determined endogenously.
Subjects: 
pharmaceutical products
price regulation
public health insurance
third-degree price discrimination
equity criterion
JEL: 
L10
L50
Document Type: 
Working Paper
Appears in Collections:

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.