A General-Equilibrium Analysis of Public Policy for Pharmaceutical Prices

Christina M. L. Kelton and Robert Rebelein ()

Journal of Public Economic Theory, 2007, vol. 9, issue 2, pages 285-318

Abstract: Retail sales of prescription drugs totaled $154.5 billion in 2001 and will likely exceed $400 billion by 2010. This paper contrasts the welfare and distributional effects of the current patented-monopoly system with those of (1) a price ceiling on pharmaceutical products and (2) a universal insurance program covering pharmaceutical purchases. We use a version of the Kelton and Wallace (1995) two-good, general-equilibrium monopoly model in which a license is required to produce one good. Individuals have heterogeneous preferences, but are otherwise identical. Results indicate potential welfare gains for both the price-ceiling and universal-insurance policies, with very distinct distributional effects. Copyright 2007 Blackwell Publishing, Inc..

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Working Paper: A General-Equilibrium Analysis of Public Policy for Pharmaceutical Prices (2005)
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