price regulation in the pharmaceutical industry prescription or placebo president clinton and several legislators have proposed restrictions on price increases in the pharmaceutical industry similar to those on some public utilities studies however suggest that under conditions of rapidly changing demand as found in pharmaceuticals price caps could be manipulated using simulations we show that in reaction to regulation pharmaceutical firms would optimally set launch prices 50 percent higher than in an unregulated market although initially hurt after seven years consumers benefit as the unregulated price rises above the price cap thus before enacting legislation congress should assess america s willingness to pay more now for lower prices in the future

the environmental economic impact of woodland a two stage hedonic price model of the amenity value of forestry in britain woodland is an important part of the environment providing economic benefits through its use in commercial timber production and through its value as an amenity as well as providing recreation for visitors woodland is also important to local residents for whom it provides leisure opportunities and a source of aesthetic enjoyment it is well known that the price of a house may reflect a household s willingness to pay to live near an environmental amenity such as a forest and to gain access to it the nature of this relationship may be examined by applying the hedonic price technique an econometric method which investigates house prices and the variation in structural and environment characteristics over space this study uses a two stage hedonic price model to explore the impact of forest type on house price and to estimate the demand for broadleaved woodland for a sample of houses adjacent to forestry commission land

drug prices and research and development investment behavior in the pharmaceutical industry abstract this paper argues theoretically and shows empirically that pharmaceutical r d spending increases with real drug prices after holding constant other determinants of research and development r d specifically an estimated elasticity suggests that a 10 percent increase in the growth of real drug prices is associated with nearly a 6 percent increase in the growth of r d intensity simulations that are based on our multiple regression model indicate that the capitalized value of pharmaceutical r d spending would have been about 30 percent lower if the federal government had limited the rate of growth in drug price increases to the rate of growth in the general consumer price index during the period 1980 2001 moreover the results suggest that a drug price control regime would have resulted in 330 65 fewer new drugs representing over one third of all actual new drug launches brought to the global market during that time period

a micro analysis of business travel demand this study tests two hypothesis 1 that tax deductibility and the dual benefit nature of goods on the business pleasure borderline increases the demand for business travel and 2 that this dual benefit decreases price elasticity the study uses expenditure microdata and contrasts the behaviour of business travellers and pleasure travellers both groups are assumed to have indentical tastes but the expenditure behaviour of business travellers is modified by the role of the business trip as a factor of production the linear expenditure system les allocation model is applied to expenditures on individual goods at a particular tourist destination business travellers are shown to have higher expenditures than pleasure travellers for food lodging and local transportation minimum quantities estimated by the les are also higher for business travellers uncompensated price elasticities of business travellers are significantly smaller than that of pleasure travellers for local transportation clothing a

pricing and patents of hiv aids drugs in developing countries this article provides empirical evidence on the impact of patents on drug prices across developing countries it uses sales data on human immunodeficiency virus hiv acquired immuno deficiency syndrome aids drugs in a sample of 34 low and middle income countries between 1995 and mid 2000 the main findings are that patents do shift drug prices up drug prices are correlated to per capita income levels and drug firms follow a skimming strategy when pricing new hiv aids drugs that is there is across country and intertemporal price discrimination in the global drug markets

a simple model of pharmaceutical price dynamics abstract branded pharmaceutical firms use price and promotional strategy to manage public knowledge about their drugs we propose a dynamic theory of pharmaceutical pricing and conduct an exploratory empirical analysis inspired by the theory our theory predicts a pattern of increasing prices and decreasing promotional activities over a drug s life cycle prices are kept low and advertising levels high early in the life cycle in order to build public knowledge about the drug as knowledge grows prices rise and advertising falls if the management of this stock is important enough this tendency of prices to rise can overwhelm the price decreasing effect of entry by generic competitors late in the drug life cycle we argue that our theory of price dynamics explains empirical regularities in this industry

assessing consumer gains from a drug price control policy in the united states 1 introductionthe on going public debate over prescription drug prices represents one of the most contentious issues in the history of u s health care politics the commonly held perception that u s drug prices are too high has been fueled by the fact that real drug prices in the united states have been rising steadily and at a rate faster than that of the general consumer price index for over two decades as a result the pharmaceutical industry has come under intense criticism with both politicians and special interest groups calling for new legislation making pharmaceuticals more affordable either through legalized reimportation from price regulated markets such as canada and the european union or more directly through government imposed price controls although these calls for legislative action are not new the united states does appear to be for the first time very close to a major policy change regarding u s drug prices 1 the u s government might like all other industrialized governments around the world soon begin regulating drug prices 2 in addition to several reimportation bills currently on the senate floor proposed amendments to the recently passed medicare modernization act of 2003 mma also exist that will allow the u s government to negotiate directly with drug manufacturers for medicare prescription drug purchases the mma currently has a noninterference clause which will amount to approximately 60 of all u s drug purchases santerre vernon and giaccotto 2006 although regulated drug prices in the united states will undoubtedly improve the public s access to today s medicines and thus generate both cost savings and improved public health it will simultaneously reduce firms incentives to invest in pharmaceutical research and development rd miller and frech 2002 as well as the sensitivity of r d investment to real pharmaceutical prices giaccotto santerre and vernon 2005 and profits vernon 2004 thus in addition to the short run benefits associated with lower regulated drug prices long run costs also arise this is precisely the tradeoff the u s patent system tries to balance by awarding limited term patents to new drug products even though a policy of regulated drug prices in the united states involves a tradeoff between short run benefits and long run costs the former outcome often receives more attention in policy debates scherer 2004 interestingly however efforts to quantify these short run benefits from a rigorous economic perspective are nonexistent therefore in this article we attempt to do just that we also compare our findings with the results from an earlier study by giaccotto santerre and vernon 2005 one that employed the same data and modeling techniques but that measured the economic costs of the same u s price control policy in terms of reduced levels of pharmaceutical innovation thus we are able to weigh the benefits of pharmaceutical price controls in terms of consumer surplus gains against the costs measured in terms of forgone drug discoveries although these studies are retrospective in nature out of necessity and consider only one type of u s price control policy one that requires pharmaceutical prices grow no faster than the consumer price index the price control policy simulated is nevertheless similar to an actual policy enacted in 1992 for drugs purchased by the government for the veterans administration va health system moreover and for the first time a formal cost benefit analysis of a particular type of drug price control is possible and this could offer new insights

can the markov switching model forecast exchange rates abstract a markov swirching model is fit for 18 exchange rates at quarterly frequencies the model fits well in sample for many exchange rates by the mean squared error criterion the markov model does not generate superior forecasts to a random walk or the forward rate there appears to ne some evidence that the forecasts of the markov model are superior at predicting the direction of change of the exchange rate

cross national price differences for pharmaceuticals how large and why bilateral drug price and quantity indexes based on comprehensive data for seven countries us canada france germany italy japan and the uk refute the conventional wisdom that us drug prices are much higher than elsewhere for laspeyres us weighted indexes previous drug price comparisons are biased by unrepresentative samples and unweighted indexes quasi hedonic regression shows that cross national price differences reflect differences in product characteristics and in their implicit prices which reflect the regulatory regime strict price regulation systematically lowers prices for older molecules and globally diffused molecules generic competition lowers prices in less regulated regimes which also have more price elastic demand

pricing of drugs with heterogeneous health insurance coverage in this paper we examine the role of insurance coverage in explaining the generic competition paradox in a two stage game involving a single producer of brand name drugs and n quantity competing producers of generic drugs independently of brand loyalty which some studies rely upon to explain the paradox we show that heterogeneity in insurance coverage may result in higher prices of brand name drugs following generic entry with market segmentation based on insurance coverage present in both the pre and post entry stages the paradox can arise when the two types of drugs are highly substitutable and the market is quite profitable but does not have to arise when the two types of drugs are highly differentiated however with market segmentation occurring only after generic entry the paradox can arise when the two types of drugs are weakly substitutable provided however that the industry is not very profitable in both cases that is when market segmentation is present in the pre entry stage and when it is not the paradox becomes more likely to arise as the market expands and or insurance companies decrease deductibles applied on the purchase of generic drugs

consumer behaviour theory and empirical evidence a survey this survey is designed to emphasize the relationship between empirical a nd theoretical considerations in the analysis of consumer behavior a lthough it focuses primarily on analysis at the individual or micro l evel it tries where possible to draw implications for the estimati on of aggregate relationships the importance of micro level analysis stems from the rapid expansion in available panel and survey data se ts this development has generated its own theoretical and empirical issues many of which are raised in this survey copyright 1988 by royal economic society

concentration potential entry and performance in the airline industry airline markets do not satisfy the theoretical conditions for perfect contestability and theory does not indicate which deviations from perfect contestibilty significantly affect performance thus the effect of potential entry on performance in airline markets is explored empirically the best model for explaining fares is found to be one in which the measure of market concentration takes into account not only the number and size distribution of incumbents but also the number of potential entrants not significantly disadvantaged due to economies of scale and scope the hypothesis that all city pair markets are perfectly contestable is rejected coauthors are richard l johnson andrew s joskow gregory j werden and michael a williams copyright 1989 by blackwell publishing ltd

pricing profits and technological progress in the pharmaceutical industry the decades old debate over pharmaceutical industry prices profits and innovation has again intensified a number of events coalesced to refocus public interest on pharmaceuticals contributing to public concern were bureau of labor statistics price index increases for pharmaceuticals far outpacing those for the products of other industries another prominent characteristic of the pharmaceutical industry has been its extraordinarily high reported profitability this article examines the phenomena that precipitated the current pharmaceuticals debate their historical antecedents and the principal questions at issue in the author s considered judgment a pell mell march toward regulation of pharmaceutical industry pricing could seriously impair the industry s incentives for investment in new products

determinants of exchange rate regime switching abstract exchange rate policy in many emerging markets shifts between a stronger and weaker commitment to peg this observation raises the following questions which we address in our paper does intervention policy exhibit switching and if so what causes policy to shift the theoretical literature increasingly points to the critical importance of financial fundamentals chinn m d kletzer k m 2001 imperfect information domestic regulation and financial crises in glick r moreno r spiegel m eds financial crises in emerging markets cambridge university press cambridge pp 196 237 dooley 2000 chang r velasco a 2005 monetary policy and the currency denomination of debt a tale of two equilibria kennedy school of government working paper series harvard university cambridge massachusetts among others direct empirical validation to date is limited however although relevant intuitions come from duration and indicators literature kaminsky g l reinhart c m vegh c a 2004 when it rains it pours procyclical capital flows and macroeconomic policies nber macroeconomics annual national bureau of economic research inc domac i peria m s 2003 banking crises and exchange rate regimes is there a link journal of international economics 61 41 72 tudela m 2004 explaining currency crises a duration model approach journal of international money and finance 23 799 816 we use a panel of quarterly data starting 1985 through 2004 for 14 countries mainly from latin america and east asia and adopt a novel two step empirical strategy first we apply regime switching methods to two simple indices of central bank exchange rate policy this generates likelihoods of high and low intervention in the second step we establish the variables that determine these probabilities we find strong evidence that the economy s balance sheet and economic performance determine the likelihood of switching in the exchange rate regime specifically an increase in reserve currency debt relative to assets raises potential capital losses from devaluation and reduces the probability of switching to a low intervention regime as does a decline in growth the purpose here is not to present an alternative regime classification levy yeyati e sturzenegger s 2005 classifying exchange rate regimes deeds vs words european economic review 49 1603 1635 reinhart c m rogoff k 2004 the modern history of exchange rate arrangements a reinterpretation quarterly journal of economics available at http www puaf umd edu faculty papers reinhart papers htm but to establish the relative importance of different constraints on the central bank which has policy implications the empirical approach and specification is flexible to whether intervention is discrete or gradual and to whether or not the central bank sterilizes

potential competition in the deregulated airlines using a new and unique data set this paper applies a systems approach to the study of potential competition prices and entry relations in airline city pair markets consistent with limit pricing models future entry is directly influenced by current prices current prices thus appear to provide an important signal to potential entrants about the probability of profitable entry while results indicate the existence of barriers to entry these barriers appear to have no independent effects on price beyond there effect on actual competition through increases in concentration copyright 1990 by mit press

regime switching and interest rates in the european monetary system this paper examines the impact that a currency target zone has on short term interest rates for a number of countries in the european monetary system we characterize the short rate using a regime switching model that allows fbr a differently parameterized mean reverting square root process in each regime we find that the volatility the level and the speed of adjustment are all higher in the regime that is operative during speculative attacks and currency crises moreover we allow the conditional probability of being in each regime to be state dependent so the model can be used to examine questions relating to the likelihood of realignments and the stability of the target zone system c 1999 elsevier science bn all rights reserved jel classification e43 g12

the ubiquity of room taxes abstract this article examines the case for the imposition of room taxes and attempts to explain their ubiquity the room tax is analysed using the main criteria for assessing taxes and is compared to property tax the extent of room tax imposition is surveyed and the possibilities of evasion are discussed

tourism and economic development a survey this article surveys the literature on tourism and economic development identifying the contribution that tourism can make to development including foreign currency income and employment and the costs that it entails single equation and system of equations models for estimating tourism demand are provided indicating developing countries potential to benefit from increasing expenditure on tourism but their susceptibility to deterioration in price competitiveness the main sectors of tourism supply transportation tour operators travel agents and accommodation are examined and the importance of cross country integration between firms is highlighted the article argues that many of the problems associated with the use of environmental resources for tourism stem from market failure and it considers methods for increasing sustainably the returns from them

regime switching models for the mexican peso abstract the mexican peso has shown long periods of tranquility that suddenly give rise to short volatile periods we characterize this exchange rate process by estimating a series of regime switching regressions and comparing the different specifications as pioneered by meese and rogoff j int econ 14 1983 3 we find evidence for two clearly identified regimes one with an appreciating trend and low volatility and another with large depreciations and high volatility we use the estimated model to explain the bias implied in the peso forward market finally we show that duration dependence or fundamentally driven transition probabilities do not improve the model s forecasting power

taxing tourism in developing countries abstract although tourism is an important industry in many developing countries where tax revenues are often in short supply surprisingly little attention has been paid to the taxation of the tourist industry this paper argues that in principle there is a strong economic case in many but not all countries for taxing tourism more than at present but that the nature of the industry and administrative difficulties severely limit what can be done in practice this analysis and a review of the fiscal instruments available to most developing countries suggest three main conclusions first more attention should be paid to introducing adequate charging policies where possible second special taxes on hotel accommodation are generally the key to tourist taxation and third there is little reason to provide special incentives for investment in the tourist industry

is there a peso problem evidence from the dollar pound exchange rate 1976 1987 one of the most puzzling aspects of the floating exchange rate regime since 1973 has been the apparent irrationality embedded in investors exchange rate expectations this paper investigates whether exchange rate forecasts although biased are still rational the idea is that investors can be rational and yet make repeated mistakes if the true model of the exchange rate is evolving over time the author s results support the hypothesis that the exchange rate has followed a switching regime process moreover the switching regime model estimated can explain about 75 percent of the bias implied by the forward market and the survey data copyright 1993 by american economic association

errors in output deflators revisited unit values and the producer price index output prices are mismeasured because of inadequate adjustments for changes in product quality thus when quality improves inflation will be systematically overstated in this study i find that the most commonly used indicator of the rate of inflation the producer price index misses about 40 percent of the change in quality however i also find that the mismeasurement of output prices is constant over time implying that errors of measurement are not a significant determinant of either the slowdown or recent acceleration in manufacturing productivity i introduction estimates of the rate of inflation are used to construct key measures of economic performance such as growth in real wages output and productivity errors in output price deflators could distort these measures and result in the adoption of misguided economic policies for example systematic underestimation of output or productivity growth could induce policymakers to take unusual actions to raise an industry s real output that may be unwarranted inaccurate estimates of price changes could also distort the results of econometric studies inflation adjusted variables are also used in econometric estimation of demand production and cost functions errors in output price statistics could yield biased and imprecise estimates of the parameters of these functions economists have long recognized the possibility that conventional estimates of the rate of inflation based on price indices such as the producer price index ppi exceed the true rate of inflation 1 the major source of mismeasurement is the adjustment of price indexes to reflect quality change 2 since the early 1960s economists have strongly advocated the use of hedonic price indexes which include adjustments for quality changes in goods based on their characteristics unfortunately the statistical agencies of the federal government have adopted these methods in only two sectors housing and computers the magnitude of these adjustments can best be illustrated by the case of computers before the hedonic price index was introduced in 1986 computer prices were treated as constant over time the quality adjusted hedonic price deflator for computers declines at an average annual rate of approximately 20 percent per year over the last twenty years 3 outside of these two industries the bureau of labor statistics tracks quality changes by employing a resource cost criterion a quality change is recorded only when there is a corresponding change in the cost of producing the product costless improvements in quality typically due to technological change are not recorded this is a likely source of bias according to early and sinclair 1983 a new product is linked into the index at its current price with the overall index showing no change in price thus if a drug company develops a new drug that is twice as good as its previous product the price index for the drug category may not decline at all even if the price of the new drug increases by less than 100 percent because of competition in the drug industry another potential source of mismeasurement is associated with the lag between the time a product is introduced in the marketplace and its appearance in the industry price series the bureau of labor statistics only tracks the price changes of a good after it captures a non negligible share of the market price movements which are typically downward that occur between the time the product has been introduced and its appearance in the price statistics are not incorporated in the price index there is some empirical evidence that this new goods bias may be severe in a recent audit of the producer price index for prescription drugs berndt griliches and rosett 1992 report that products under two years old were not sampled at all in the construction of the price index although many have argued that the measurement problems are serious until recently there was no estimate of the magnitude of the bias

generics and new goods in pharmaceutical price indexes drug prices and their rate of inflation are a major focus of current policy debates on u s health care in this paper we show that where patent expiration and generic entry are significant as they are for many important classes of drugs movements in the official price indexes may be poor indicators of the actual prices paid and the resulting changes in consumer welfare when a drug goes off patent those consumers who regard the branded and generic versions as more or less perfect substitutes experience a substantial price decline and concomitant welfare gain which the current methods used by the statistical agencies fail to capture we suggest a number of alternative ways of proceeding although our computations are based on a limited number of cases they imply that the overall rate of inflation in drug prices may be quite seriously overstated while generic pharmaceuticals are the topic of our calculations the problem discussed is also of wider importance generic drugs are a special and possibly easy case

international tourism and export instability export diversification has been suggested as a strategy for decreasing the level of export earnings instability which is experienced by many developing countries in recent years the international tourism sector has made an increasingly important contribution to the economies of many low income countries this article examines whether diversification into the non traditional tourism sector has succeeded in decreasing the instability of export earnings it was found that although tourism has the advantage of high growth rates and is a major source of foreign currency receipts earnings from international tourism did not bring about a significant decrease in the instability of export earnings of most of the developing and industrialised countries considered furthermore a net increase in the instability of earnings from tourism and merchandise exports occurred in a number of countries and may be a particular problem in small open developing economies

on the determination of the us aggregate health care expenditure per capita real health care expenditure is examined against three major groups of explanatory variables economic demographic and health stock and it is found that the three groups of variables have an impact on real health care spending other subcategories such as real private and government health care pharmaceutical dental home nursing ambulatory personal medical consumption and in patient expenditures have also been examined and have been found to be affected by the explanatory variables for several subcomponents there is evidence of supplier inducement of the demographic group of variables the ageing population had an impact only on the per capita real overall and private health care outlay and pharmaceutical spending also cointegrating relationships were found and consistent estimators of the elasticities found

a survey of measurement biases in price indexes abstract this paper reviews the literature on measurement error in the major us price indexes the consumer price index cpi the producer price index rpi and the gross domestic product gdp deflators we take as our point of departure triplett s 1975 survey and focus on the studies of measurement error that have appeared since then we review the problems of substitution bias quality bias new goods bias and outlet substitution bias that are generally considered to be the main sources of error in price indexes the bulk of the paper is devoted to problems in the cpi and ppi as the gdp deflators tend to be based mainly on the components of these series we find that there has been surprisingly little work on the problem of overall measurement error in any of these price indexes and we conclude that there is very little scientific basis for the commonly accepted notion that measured inflation at 2 to 3 percent a year is consistent with price stability

conservationist government policies and intergenerational equity in an overlapping generations model with renewable resources abstract this paper shows that in overlapping generations models incorporating renewable natural resources competition may lead to perpetually declining living standards in environments in which it is technically feasible to achieve intergenerationally equitable distributions of consumption first and second best conservationist government policies are examined these include forced nationalization of the entire stock of natural capital government open market purchases and sales of natural capital taxation of industrial use of resources and subsidies to private investments in natural capital

unit root properties of crude oil spot and futures prices in this article we examine whether wti and brent crude oil spot and futures prices at 1 3 and 6 months to maturity contain a unit root with one and two structural breaks employing weekly data over the period 1991 2004 to realise this objective we employ lagrange multiplier lm unit root tests with one and two endogenous structural breaks proposed by lee and strazicich 2003 minimum lagrange multiplier unit root test with two structural breaks review of economics and statistics 85 1082 1089 2004 minimum lm unit root test with one structural break working paper no 04 17 department of economics appalachian state university we find that each of the oil price series can be characterised as a random walk process and that the endogenous structural breaks are significant and meaningful in terms of events that have impacted on world oil markets

an econometric study of tourism demand the aids model of us and european tourism in mediterranean countries the almost ideal demand system aids model was used to estimate tourism expenditure allocation by us and west european countries among a range of mediterranean destinations the approach has the advantage of an explicit basis in consumer expenditure theory and by modelling the changes in the budget shares of expenditure among destinations provides new information relative to that provided by the traditional single equation approach the estimated model was econometrically satisfactory although symmetry and homogeneity were rejected in line with the findings of past studies of consumer demand the expenditure elasticities demonstrated considerable differences in tourism demand preferences between origin countries and between traditional and newly developing destinations the own and cross price elasticities indicated the importance of effective prices in determining the allocation of expenditure among destinations

experience as a barrier to contestability in airline markets contrary to one of the predictions of the contestability hypothesis price in deregulated u s passenger airline markets is related to actual competition from diversifying former intrastates and newly established carriers more important former intrastates have a larger impact on price than do newly established firms a result consistent with these markets being imperfectly competitive because of an industry experience barrier to entry unlike actual competition a measure of potential competition has no effect in constraining price copyright 1989 by mit press

tourism as a factor in development cooperation abstract where there is little or no industrial or agricultural base and no exploitable resource tourism may make a significant contribution to the economy of a developing country the eec provides aid to developing countries in three areas the southern mediterranean asia and latin america and africa the caribbean and the pacific the commission has produced guidelines for drawing up proposals and a typical example is presented in this article the eec also supplies high quality expertise to help define policy options and strategic plans and carry out agreed programmes long term success is more likely for specialized high income projects

auditing the producer price index micro evidence from prescription pharmaceutical preparations from january 1984 through december 1989 the bureau of labor statistics bls price index for prescription pharmaceuticals grew at 9 09 per year using bls type laspeyres index procedures with monthly price and quantity data on all prescription pharmaceuticals sold by four u s pharmaceutical manufacturers accounting for 24 of industry domestic sales we find that the four company index increases at 6 68 per year when we employ a divisia price index with smoothed weights incorporating new goods the index grows 6 03 per year why does the bls index grow 50 more rapidly than the divisia index that mystery is the focal point of our article