On international cost-sharing of pharmaceutical R&D
- 98 Downloads
Ramsey pricing has been proposed in the pharmaceutical industry as a principle to price discriminate among markets while allowing to recover the (fixed) R&D cost. However, such analyses neglect the presence of insurance or the fund raising costs for most of drug reimbursement. By incorporating these new elements, we aim at providing some building blocks towards an economic theory incorporating Ramsey pricing and insurance coverage. We show how coinsurance affects the optimal prices to pay for the R&D investment. We also show that under certain conditions, there is no strategic incentive by governments to set coinsurance rates in order to shift the financial burden of R&D. This will have important implications to the application of Ramsey pricing principles to pharmaceutical products across countries.
KeywordsRamsey pricing Coinsurance
JEL ClassificationsI11 I18 L51
Unable to display preview. Download preview PDF.
- Adachi T. (2002). A note on third-degree price discrimination with interdependent demands. Journal of Industrial Economics 50: 235 Google Scholar
- Danzon, P. M. (no date). Parallel trade and comparative pricing of medicines: poor choice for patients? http://www.pfizerforum.com.
- Dumonliu J. (2001). Global pricing strategies for innovative essential drugs. International Journal of Biotechnology 3(3–4): 338–349 Google Scholar
- Fullerton D. (1991). Reconciling recent estimates of the marginal welfare cost of taxation. American Economic Review 81: 302–308 Google Scholar
- Jack, W., & Lanjouw, J. O. (2003). Financing pharmaceutical innovation: How much should poor countries contribute? Center for Global Development, working paper No. 28.Google Scholar
- Love, J. (2001). Policies that ensure access to medicine and promote innovation, with special attention to issues concerning the impact of parallel trade on the competitive sector, and a trade framework to support global R&D on new health inventions. WHO/WTO Joint Secretariat Workshop on Differential Pricing and Financing of Essential Drugs, Hoshjor, Norway. http://www.cptech.org/ip/health/econ/jamie-hosbjor.html
- (2007). Health systems in transition: Template for analysis. WHO Regional Office for Europe on behalf of European Observatory on Health Systems and Policies, Copenhagen Google Scholar
- Newhouse J. (1993). Free for all? Lessons from the RAND health insurance experiment. Harvard University Press, Cambridge, MA Google Scholar
- Raghavan, C. (2001). Differential pricing for drugs to help people or corporations. http://www.twnsite.org.sg/title/pricing.htm.
- Ringel, J., Hosek, S., Vollaard, B., & Mahnovsky, S. (2005). The elasticity of demand for health care—a review of the literature and its application to the Military Health System, Rand Health report. http://www.rand.org/pubs/monograph_reports/2005/MR1355.pdf.
- Schmalensee R. (1981). Output and welfare implications of monopolistic third-degree price discrimination. American Economic Review 71: 242–247 Google Scholar
- Toole A. (2005). The evolving US pharmaceutical research enterprise. Economic Realities in Health Care Policy 4(1): 3–9 Google Scholar
- Tufts CSDD. (2003). Post-approval R&D raises total drug development costs to $897 million. Impact Report, 5(3).Google Scholar