Scandinavian Working Papers in Economics
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Department of Economics, Umeň University Umeň Economic Studies, Department of Economics, Umeň University

No 602:
Uncertainty in the Generic Versus Brand Name Prescription Decision

J÷rgen Hellstr÷m () and Niklas Rudholm ()

Abstract: This paper analyzes the impact of uncertainty concerning product quality of generic drugs on the substitution behavior of prescribing physicians. It is shown that uncertainty about the generic drug quality gives the physician a value of waiting for more information before switching to the generic version. In addition, it is shown that reducing the approval requirements for generic drugs, thereby increasing uncertainty about quality, may discourage physicians from prescribing such drugs. A small empirical study supports the theoretical findings and indicate that uncertainty about the quality of generic drugs do affect physician prescription behavior.

Keywords: Pharmaceutical industry; uncertainty; real options; (follow links to similar papers)

JEL-Codes: I11; L65; (follow links to similar papers)

21 pages, January 20, 2003

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