Pharmaceutical demand and welfare implications of innovation

In this study, I formulate an empirical methodology that quantifies patient welfare benefits from pharmaceutical innovation in the U.S. antidepressant market. While evaluating pharmaceutical innovation in antidepressants, I uncover and address the moral hazard issue that arises due to the existence of prescription drug insurance coverage. The study estimates large patient welfare gains due to innovation and helps explain a detected divergence between social and private patient benefits by the existence of insurance. These findings aid in public policy decision making on health care and pharmaceutical industry concerns.; The study employs an original dataset that consists of annual observations on prices, quantities and drug characteristics for every antidepressant medication sold in the U.S. market from 1980 to 2001. Data also include information on the segmentation of the therapeutic area of antidepressants into different categories of drugs as well as information on branded and generic entry of antidepressants in the U.S. market.; The first chapter of the dissertation utilizes a structural discrete choice model of hedonic demand to estimate the changes in patient welfare due to antidepressant introduction.; In addition, the model allows for unobserved patient heterogeneity in the valuation of different drug characteristics that reflects the idiosyncrasy of antidepressant side effects.; Demand estimates correctly detect marginal disutilities for drug side effects and estimated drug substitution patterns accurately reflect differences in patient tastes for drug attributes. I find a large mean price disutility, which varies with income and insurance demographics. The estimated price sensitivity decreases with patient income and when patients are insured against prescription drug expenditures. Moreover, patients demonstrate a high preference for branded drugs. The wealthier the patients and the more insurance coverage they have, the higher the preference.; Welfare estimation involves the calculation of an upper bound for incremental patient surplus when all the gains obtained are attributed to the innovation in question and a lower bound when the innovative drug is excluded from the choice set at the time of innovation. (Abstract shortened by UMI.)...