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Department of Economics, Aarhus School of Business, University of Aarhus Working Papers, Department of Economics, Aarhus School of Business, University of Aarhus

No 10-1:
Price Sensitivity of Demand for Prescription Drugs: Exploiting a Regression Kink Design

Marianne Simonsen, Lars Skipper () and Niels Skipper

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.

Keywords: Prescription drugs; price; reimbursement schemes; regression kink design; (follow links to similar papers)

JEL-Codes: I11; I18; (follow links to similar papers)

49 pages, January 15, 2010

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