The antibiotic market is characterized by at least two potential market failures. First, if neither producers nor prescribers/patients internalize the negative externality of resistance stemming from inappropriate use, existing treatments may quickly lose efficacy. Second, addressing inappropriate use may undermine incentives to invest in new antibiotics. For example, restricting the use of a new antibiotic in order to delay the emergence of antibiotic resistance may depress expected profits, thus deterring pharmaceutical firms from investing in this area. Traditional models to promote innovation, in particular the patent system, are ill-suited to this context because producers have incentives to maximize the use of their treatments during the period of patent protection. The overuse that potentially results contributes to antibiotic resistance.
Since many of the infectious diseases treated by antibiotics have the potential to become pandemics, the public health consequences of these market failures may be severe. Indeed, the European Commission has identified antimicrobial resistance as a “major European and global challenge,”associated with the deaths of 25000 patients per year in the European Union and 1.5 billion euros of extra healthcare costs and lost productivity.
We will estimate economic models explaining the behavior of patients, physicians, payers, and pharmaceutical firms in the consumption and production of antibiotics. First, we will estimate patient demand for antibiotics using patient-level panel data on health expenditures extending the usual models of demand to a dynamic setting with consumption externalities. Second, we will estimate physician choices for antibiotic prescriptions using prescriber-level panel data, incorporating the dynamics of physician learning as well as consumption externalities. Third, we will consider two models of price-setting: one in which the producer of an antibiotic chooses the price, and the other in which the price is set by a national regulator. In both models, we will explore how the decision-maker accounts for the emergence of antibiotic resistance in the value and price of the product. Finally, we will estimate a model of R&D investment in new antibiotics that accounts for the behavior of patients, physicians, and payers, and in which we will also allow for government research funding that is endogenously chosen.
Ultimately, our objective is to evaluate specific policy proposals using the results of estimation of structural models representing the patient, physician, and producer behaviors. These evaluations will be an important contribution to the policy debate. They are also of independent interest in economics, touching on fundamental concepts such as externalities (individual overconsumption resulting from the failure to account for contribution to resistance), moral hazard (individual overconsumption resulting from insurance coverage), time discounting (how future resistance is accounted for by forward looking agents), agency issues (the extent to which a physician acts in the interest of a patient), and regulation (the extent to which price regulators account for overconsumption and resistance). A better understanding of these contributes to optimal policy design in other markets as well.
Project : 01/10/2016 – 30/09/2021