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The Effects of Pharmaceutical Marketing and Promotion on Adverse Drug Events and Regulation

Guy David, Sara Markowitz () and Seth Richards-Shubik

No 14634, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper analyzes the relationship between postmarketing promotional activity and reporting of adverse drug events by modeling the interaction between a welfare maximizing regulator (the FDA) and a profit maximizing firm. In our analysis demand is sensitive to both promotion and regulatory interventions. Promotion-driven market expansions enhance profitability yet may involve the risk that the drug would be prescribed inappropriately, leading to adverse regulatory actions against the firm. The model exposes the effects of the current regulatory system on consumer and producer welfare. Particularly, the emphasis on safety over benefits distorts the market allocation of drugs away from some of the most appropriate users. We then empirically test the relationship between drug promotion and reporting of adverse reactions using an innovative combination of commercial data on pharmaceutical promotion and FDA data on regulatory interventions and adverse drug reactions. We provide some evidence that increased levels of promotion and advertising lead to increased reporting of adverse medical events for certain conditions.

JEL-codes: I1 K0 K2 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hea, nep-law, nep-mkt and nep-reg
Date: 2009-01
Note: HC HE LE
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Published as Guy David & Sara Markowitz & Seth Richards-Shubik, 2010. "The Effects of Pharmaceutical Marketing and Promotion on Adverse Drug Events and Regulation," American Economic Journal: Economic Policy, American Economic Association, vol. 2(4), pages 1-25, November.

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