The welfare effects of public drug insurance / Darius Lakdawalla, Neeraj Sood
- Lakdawalla, Darius
- Cambridge, Mass. : National Bureau of Economic Research, 
- Copyright Date:
- Physical Description:
- 35, 4, 2 pages : illustrations ; 22 cm.
- Additional Creators:
- Sood, Neeraj
National Bureau of Economic Research
Full Text available online
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- NBER working paper series ; working paper no. 13501
- Rewarding inventors with inefficient monopoly power has long been regarded as the price of encouraging innovation. Public prescription drug insurance escapes that trade-off and achieves an elusive goal: lowering static deadweight loss, while simultaneously encouraging dynamic investments in innovation. As a result of this feature, the public provision of drug insurance can be welfare-improving, even for risk-neutral and purely self-interested consumers. In spite of its relatively low benefit levels, the Medicare Part D benefit generate $3.5 billion of annual static deadweight loss reduction, and at least $2.8 billion of annual value from extra innovation. These two components alone cover 87% of the social cost of publicly financing the benefit. The analysis of static and dynamic efficiency also has implications for policies complementary to a drug benefit: in the context of public monopsony power, some degree of price-negotiation by the government is always strictly welfare-improving, but this should often be coupled with extensions in patent length.
- "October 2007."
- Bibliography Note:
- Includes bibliographical references.
- Other Forms:
- Also available in PDF from the NBER world wide web site (www.nber.org).
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