Market Power

Musings by an academic economist on the power of markets and the power over markets.

Wednesday, October 27, 2004

Pharmaceutical Price Controls

Kenneth Todd summarizes some of his research on the effect of pharmaceutical price controls in the Fall 2004 issue of Regulation. It's the second story in this link. Todd and his coauthors of a forthcoming Journal of Law and Economics paper estimate that each 10% reduction in drug prices will lead to a 5.83% decrease in research expenditures on pharmaceuticals. Furthermore, Todd calculates the number of life-years lost in various price control scenarios. For example, a 10% reduction on drug prices through price ceilings would lead to 40.1 million lost life years - 40.1 million fewer years lived by US inhabitants. A 50% reduction leads to an estimated 178.8 million life years lost.

Closer to home, I have high cholesterol and have recently been diagnosed with high blood pressure. My father died of a heart attack when he was 44 and my grandfather (dad's dad) died of a heart attack while in his 50's. Grandpa was overweight but dad was small. Both were heavy smokers. I do not smoke but family history and these conditions make me a walking time bomb.

My doctor has me on Lipitor for my cholesterol and he has prescribed Benicar for my blood pressure. If there were heavy price controls on drug prices back in the 60's - 80's, would any of these drugs have been around? How many substitutes would there have been? What would have been my choices?

Today's price controls on pharmaceuticals will also affect my two sons as they get older. What is moral about giving today's people lower drug prices since my sons will have to pay the price in the future?